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Correlated Random Effects

Correlated Random Effects - CORRELATED RANDOM EFFECTS...

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CORRELATED RANDOM EFFECTS MODELS WITH UNBALANCED PANELS Jeffrey M. Wooldridge Department of Economics Michigan State University East Lansing, MI 48824-1038 [email protected] July 2009 I presented an earlier version of this paper, called “Nonlinear Correlated Random Effects Models with Unbalanced Panels,” at the 15 th Conference on Panel Data, Bonn, Germany, July 3-5, 2009. I thank Simon Quinn for helpful comments. 1
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Abstract : I propose some strategies for allowing unobserved heterogeneity to be correlated with observed covariates and sample selection for unbalanced panels. The methods are extensions of the Chamberlain-Mundlak approach for balanced panels. Even for nonlinear models, in many cases the estimators can be implemented using standard software. The framework suggests straightforward tests of correlation between heterogeneity and the covariates, as well as sample selection that is correlation with unobserved shocks while allowing selection to be correlated with the observed covariates and unobserved heterogeneity. 2
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