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# Econometric Analysis of Panel Data - PowerPoint PPT Presentation

Econometric Analysis of Panel Data. Panel Data Analysis Fixed Effects Dummy Variable Estimator Between and Within Estimator First-Difference Estimator Panel-Robust Variance-Covariance Matrix Heteroscedasticity and Autocorrelation Cross Section Correlation Hypothesis Testing

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## PowerPoint Slideshow about 'Econometric Analysis of Panel Data' - freya

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Presentation Transcript

• Panel Data Analysis

• Fixed Effects

• Dummy Variable Estimator

• Between and Within Estimator

• First-Difference Estimator

• Panel-Robust Variance-Covariance Matrix

• Heteroscedasticity and Autocorrelation

• Cross Section Correlation

• Hypothesis Testing

• To pool or Not to pool

• Fixed Effects Model

• ui is fixed, independent of eit, and may be correlated with xit.

• Classical Assumptions

• Strict Exogeneity

• Homoschedasticity

• No cross section and time series correlation

• Extensions

• Weak Exogeneity

• Extensions

• Heteroschedasticity

• Extensions

• Time Series Correlation (with cross section independence for short panels)

• Extensions

• Cross Section Correlation (with time series independence for long panels)

• Dummy Variable Representation

• Note: X does not include constant term, otherwise one less number of dummy variables should be used.

• Dummy Variable Estimator (LSDV)

• Heteroscedasticity and Autocorrelation

Panel-Robust Variance-Covariance Matrix

Within Model Representation

Model Assumptions

• Within Estimator: FE-OLS

• Within Estimator: GLS

• GLS = FE-OLS

• Note:

• Normality Assumption

Log-Likelihood Function

ML Estimator

ML Estimator of e2 is downward biased even for large N:

For balanced panel (T=Ti: ), e2 should be estimated as:

• Estimated Fixed Effects

• For , is consistent but is inconsistentunless .

• Panel-Robust Variance-Covariance Matrix

• Consistent statistical inference for general heteroscedasticity, time series and cross section correlation.

• First-Difference Representation

• Model Assumptions

• First-Difference Estimator: FD-OLS

• Consistent statistical inference for general heteroscedasticity, time series and cross section correlation should be based on panel-robust variance-covariance matrix.

• First-Difference Estimator: GLS

• To Pool or Not to Pool?

• F-Test based on dummy variable model: constant or zero coefficients for D w.r.t F(N-1,NT-N-K)

• F-test based on fixed effects (unrestricted) model vs. pooled (restricted) model

• Heteroscedasticity

• Serial Correlation

• Spatial Correlation

• Grunfeld and Griliches [1960]

• i = 10 firms: GM, CH, GE, WE, US, AF, DM, GY, UN, IBM; t = 20 years: 1935-1954

• Iit = Gross investment

• Fit = Market value

• Cit = Value of the stock of plant and equipment