<< Chapter < Page Chapter >> Page >

There is one problem that arises when using a fixed-effects model. Assume that you have a sample of observations for a large number of individuals over a period of years. If you use a fixed-effects model, you will not be able to find parameter estimates for any variable like race or sex that do not change over the time period of the sample. The reason for this limitation is that the time-constant variables are perfectly correlated with the dummy variables used for the fixed-effects. A similar problem arises if the fixed-effects are for years (rather than individuals). You cannot include a variable is constant for all individuals in any given year. Quite often the individual-constant (or time-constant) variable is not of interest and nothing is lost by not having the parameter estimate. On the other hand, the random-effects model does not have this problem because the estimation makes use of differences amongst the individuals to estimate a parameter for the individual-constant variable. Another way to think about this point is to remember that, unlike the fixed-effects model, the random-effects does not use dummy variables to summarized the unknown characteristics; thus, there is no problem with multicollinearity. We discuss in the next section an example in which this “problem” arises.

What would be nice is if there were a statistical test that allows us to decide if the random-effects model is the appropriate model? The Hausman test offers such a statistical test. The Hausman (specification) test exploits the fact that the parameters for the random-effects model should be not be statistically different from those found using a fixed-effects specification. If one observes a chi-squared value greater than the critical value you can conclude that the parameter estimates for the random-effects model are statistically different from the parameter estimates for a model using an assumption of fixed-effects, then you can conclude that the random-effects model is misspecified. Unfortunately, the misspecification could be due to the fact that the fixed-effects model is appropriate or it could be due to the unobserved error terms being correlated with the included explanatory variables. If the latter is the case, then one might consider augmenting the model with an appropriate measure of the part of the unobserved effect that is correlated with the error term. What we are describing is that same thing that happens when omitted variables are correlated with the error term—the parameter estimates are biased. We include an example of how to use Stata to perform the Housman specification test.

Estimation of panel data models in stata

General comments

There are three commands that matter in setting up the panel data. The first two commands precede the regression command because they establish which variable denotes the time period and which variable denotes the cross-sectional unit. These commands are:

.iis [variable name]

.tis [variable name]

The command for estimating the fixed-effects model is:

Questions & Answers

Do somebody tell me a best nano engineering book for beginners?
s. Reply
what is fullerene does it is used to make bukky balls
Devang Reply
are you nano engineer ?
what is the Synthesis, properties,and applications of carbon nano chemistry
Abhijith Reply
so some one know about replacing silicon atom with phosphorous in semiconductors device?
s. Reply
Yeah, it is a pain to say the least. You basically have to heat the substarte up to around 1000 degrees celcius then pass phosphene gas over top of it, which is explosive and toxic by the way, under very low pressure.
how to fabricate graphene ink ?
for screen printed electrodes ?
What is lattice structure?
s. Reply
of graphene you mean?
or in general
in general
Graphene has a hexagonal structure
On having this app for quite a bit time, Haven't realised there's a chat room in it.
what is biological synthesis of nanoparticles
Sanket Reply
what's the easiest and fastest way to the synthesize AgNP?
Damian Reply
types of nano material
abeetha Reply
I start with an easy one. carbon nanotubes woven into a long filament like a string
many many of nanotubes
what is the k.e before it land
what is the function of carbon nanotubes?
I'm interested in nanotube
what is nanomaterials​ and their applications of sensors.
Ramkumar Reply
what is nano technology
Sravani Reply
what is system testing?
preparation of nanomaterial
Victor Reply
Yes, Nanotechnology has a very fast field of applications and their is always something new to do with it...
Himanshu Reply
good afternoon madam
what is system testing
what is the application of nanotechnology?
In this morden time nanotechnology used in many field . 1-Electronics-manufacturad IC ,RAM,MRAM,solar panel etc 2-Helth and Medical-Nanomedicine,Drug Dilivery for cancer treatment etc 3- Atomobile -MEMS, Coating on car etc. and may other field for details you can check at Google
anybody can imagine what will be happen after 100 years from now in nano tech world
after 100 year this will be not nanotechnology maybe this technology name will be change . maybe aftet 100 year . we work on electron lable practically about its properties and behaviour by the different instruments
name doesn't matter , whatever it will be change... I'm taking about effect on circumstances of the microscopic world
how hard could it be to apply nanotechnology against viral infections such HIV or Ebola?
silver nanoparticles could handle the job?
not now but maybe in future only AgNP maybe any other nanomaterials
I'm interested in Nanotube
this technology will not going on for the long time , so I'm thinking about femtotechnology 10^-15
can nanotechnology change the direction of the face of the world
Prasenjit Reply
At high concentrations (>0.01 M), the relation between absorptivity coefficient and absorbance is no longer linear. This is due to the electrostatic interactions between the quantum dots in close proximity. If the concentration of the solution is high, another effect that is seen is the scattering of light from the large number of quantum dots. This assumption only works at low concentrations of the analyte. Presence of stray light.
Ali Reply
how did you get the value of 2000N.What calculations are needed to arrive at it
Smarajit Reply
Privacy Information Security Software Version 1.1a
Got questions? Join the online conversation and get instant answers!
QuizOver.com Reply

Get the best Algebra and trigonometry course in your pocket!

Source:  OpenStax, Econometrics for honors students. OpenStax CNX. Jul 20, 2010 Download for free at http://cnx.org/content/col11208/1.2
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Econometrics for honors students' conversation and receive update notifications?