Wooldridge PPT ch14

# Fall 2008 under econometrics prof keunkwan ryu 4

• Notes
• 11

This preview shows pages 4–9. Sign up to view the full content.

Fall 2008 under Econometrics Prof. Keunkwan Ryu 4 Fixed Effects or First Differencing? First Differences and Fixed Effects will be exactly the same when T = 2 For T > 2, the two methods are different Probably see fixed effects estimation more often than differences – probably more because it’s easier than that it’s better Fixed effects easily implemented for unbalanced panels, not just balanced panels

This preview has intentionally blurred sections. Sign up to view the full version.

Fall 2008 under Econometrics Prof. Keunkwan Ryu 5 2. Random Effects Models Start with the same basic model with a composite error, y it = β 0 + β 1 x it1 + . . . β k x itk + a i + u it Assume cov(x itj ,a i )=0 , t=1,2,…,T ; j=1,2,..k Previously we’ve assumed that a i was correlated with the x ’s, but what if it’s not? OLS would be consistent in that case, but composite error will be serially correlated
Fall 2008 under Econometrics Prof. Keunkwan Ryu 6 2. Random Effects (continued) Need to transform the model and do GLS to solve the problem and make correct inferences Need to transform the model and do GLS to solve the problem and make correct inferences

This preview has intentionally blurred sections. Sign up to view the full version.

Fall 2008 under Econometrics Prof. Keunkwan Ryu 7 2. Random Effects (continued) End up with a sort of weighted average of OLS and Fixed Effects – use quasi-demeaned data ( 29 [ ] ( 29 ( 29 ( 29 ( 29 i it ik itk k i it i it a u u x x x x y y T ν λ ν λ β λ β λ β λ σ σ σ λ - + - + + - + - = - + - = ... 1 1 1 1 1 0 2 1 2 2 2
Fall 2008 under Econometrics Prof. Keunkwan Ryu 8 2.Random Effects (continued) If λ

This preview has intentionally blurred sections. Sign up to view the full version.

This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern