Econometrics 2 Advanced Panel Data Methods II Advanced

Econometrics 2 Advanced Panel Data Methods II Advanced Panel Data Methods 1

Panel Data Methods Last time: Panel data with more periods and fixed effects estimation. n First-differencing with more than two periods (13. 5) n Within transformation (14. 1) n Dummy variable regression n A simulated illustration n Example: Job training grants. Today: Panel data with uncorrelated heterogeneity. Alternative data structures. n Random effects (RE) model (14. 2) n Feasible Generalized least squares estimation: RE estimation n Fixed or random effects? n Alternative data structures (14. 3): Matched pair samples, cluster samples. Advanced Panel Data Methods 2

Random effects model Advanced Panel Data Methods 3

Random effects model (2) Advanced Panel Data Methods 4

Covariance structure Advanced Panel Data Methods 5

Covariance structure (2) Advanced Panel Data Methods 6

GLS estimator for the RE model Advanced Panel Data Methods 7

GLS estimator for the RE model (2) Advanced Panel Data Methods 8

Feasible GLS: The RE estimator Advanced Panel Data Methods 9

Fixed or random effects? Advanced Panel Data Methods 10

Fixed or random effects? (2) Assumption Name Estimator Random effects assumption (uncorrelated heterogeneity) i) Fixed effects assumption (correlated heterogeneity) i) ii) iii) Properties Pooled OLS Feasible GLS (RE) i) First-differences (FD) Within Least squares dummy variables (LSDV) All are consistent ii) and iii) are identical Advanced Panel Data Methods ii) Consistent and efficient 11

Fixed or random effects? (3) Advanced Panel Data Methods 12

Panel data models applied to other data structures Advanced Panel Data Methods 13

Next time n n n Monday next week! Heino takes over the course and talks about Monte Carlo simulation and Pc. Naive. Next topics are: q A short introduction to time series q A block on more on general estimation methods (maximum likelihood and generalized methods of moments). Remember the exercises this week! Thanks for now! Use my contact information on the home page if you have questions about the panel data part. Advanced Panel Data Methods 14