Lecture 09-2005

# Lecture 09-2005 - Functions:RandomEffects inPanelData...

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Estimation of Production  Functions: Random Effects  in Panel Data Lecture IX

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Fall 2005 Lecture IX 2 Basic Setup Regression analysis typically assumes that a  large number of factors affect the value of the  dependent variable, while some of the variables  are measured directly in the model the  remaining variables can be summarized by a  random distribution  [ ] ( 29 [ ] ( 29 it it it it it it it it it y x z E z x z E z α β γ ε = + + + = + + + + -
Fall 2005 Lecture IX 3 When “numerous observations” on individuals are  observed over time, it is assumed that some of the  omitted variables represent factors peculiar to  individual and time periods. Going back to the panel specification * it it it it i t it y x v v u α β λ = + + = + +

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Fall 2005 Lecture IX 4 [ ] [ ] [ ] [ ] [ ] [ ] 0 i t it i t i it t it E E E u E E u E u α λ α λ = = = = = 2 if 0 if i j i j E i j σ α α = = [ ] 2 if 0 if t s t s E t s λ λ = =
Fall 2005 Lecture IX 5 2 if , 0 Otherwise u it js i j t s E u u σ = = = 0 i it t it it it E x E x E u x α λ = = =

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Fall 2005 Lecture IX 6
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Lecture 09-2005 - Functions:RandomEffects inPanelData...

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