《计量经济学导论》ch14.pptVIP

Chapter 14 ;Fixed effects estimation Estimate time-demeaned equation by OLS Uses time variation within cross-sectional units (= within-estimator);Example: Effect of training grants on firm scrap rate ;Discussion of fixed effects estimator Strict exogeneity in the original model has to be assumed The R-squared of the demeaned equation is inappropriate The effect of time-invariant variables cannot be estimated But the effect of interactions with time-invariant variables can be estimated (e.g. the interaction of education with time dummies) If a full set of time dummies are included, the effect of variables whose change over time is constant cannot be estimated (e.g. experience) Degrees of freedom have to be adjusted because the N time averages are estimated in addition (resulting degrees of freedom = NT-N-k);Interpretation of fixed effects as dummy variable regression The fixed effects estimator is equivalent to introducing a dummy for each individual in the original regression and using pooled OLS: After fixed effects estimation, the fixed effects can be estimated as:;Fixed effects or first differencing? Remember that first differencing can also be used if T 2 In the case T = 2, fixed effects and first differencing are identical For T 2, fixed effects is more efficient if classical assumptions hold First differencing may be better in the case of severe serial correlation in the errors, for example if the errors follow a random walk If T is very large (and N not so large), the panel has a pronounced time series character and problems such as strong dependence arise In these cases, it is probably better to use first differencing Otherwise, it is a good idea to compute both and check robustness;Random effects models;Estimation in the random effects model Under the random effects assumptions explanatory variables are exogenous so that pooled OLS provides consistent estimates If OLS is used, standard errors have to be adjusted for the fact that errors are correlated ove