ch14 Fixed Effects Estimation 《计量经济学导论》教材.pptVIP

Fixed Effects Estimation When there is an observed fixed effect, an alternative to first differences is fixed effects estimation Consider the average over time of yit = b1xit1 +…+ bkxitk + ai + uit The average of ai will be ai, so if you subtract the mean, ai will be differenced out just as when doing first differences Fixed Effects Estimation (cont) If we were to do this estimation by hand, we’d need to be careful because we’d think that df = NT – k, but really is N(T – 1) – k because we used up dfs calculating means Luckily, Stata (and most other packages) will do fixed effects estimation for you This method is also identical to including a separate intercept or every individual First Differences vs Fixed Effects 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 Random Effects Start with the same basic model with a composite error, yit = b0 + b1xit1 + . . . bkxitk + ai + uit Previously we’ve assumed that ai 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 Random Effects (continued) Need to transform the model and do GLS to solve the problem and make correct inferences Idea is to do quasi-differencing with the Fixed Effects or Random? More usual to think need fixed effects, since think the problem is that something unobserved is correlated with the x’s If truly need random effects, the only problem is the standard errors Can just adjust the standard errors for correlation within group Other Uses of Panel Methods It’s possible to think of models where there is an unobserved fixed effect, even if we do not have true panel data A common example is where we think there is an unobserved family effect