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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

where we get a research paper on Nano chemistry....?
Maira Reply
what are the products of Nano chemistry?
Maira Reply
There are lots of products of nano chemistry... Like nano coatings.....carbon fiber.. And lots of others..
learn
Even nanotechnology is pretty much all about chemistry... Its the chemistry on quantum or atomic level
learn
Google
da
no nanotechnology is also a part of physics and maths it requires angle formulas and some pressure regarding concepts
Bhagvanji
Preparation and Applications of Nanomaterial for Drug Delivery
Hafiz Reply
revolt
da
Application of nanotechnology in medicine
what is variations in raman spectra for nanomaterials
Jyoti Reply
I only see partial conversation and what's the question here!
Crow Reply
what about nanotechnology for water purification
RAW Reply
please someone correct me if I'm wrong but I think one can use nanoparticles, specially silver nanoparticles for water treatment.
Damian
yes that's correct
Professor
I think
Professor
Nasa has use it in the 60's, copper as water purification in the moon travel.
Alexandre
nanocopper obvius
Alexandre
what is the stm
Brian Reply
is there industrial application of fullrenes. What is the method to prepare fullrene on large scale.?
Rafiq
industrial application...? mmm I think on the medical side as drug carrier, but you should go deeper on your research, I may be wrong
Damian
How we are making nano material?
LITNING Reply
what is a peer
LITNING Reply
What is meant by 'nano scale'?
LITNING Reply
What is STMs full form?
LITNING
scanning tunneling microscope
Sahil
how nano science is used for hydrophobicity
Santosh
Do u think that Graphene and Fullrene fiber can be used to make Air Plane body structure the lightest and strongest. Rafiq
Rafiq
what is differents between GO and RGO?
Mahi
what is simplest way to understand the applications of nano robots used to detect the cancer affected cell of human body.? How this robot is carried to required site of body cell.? what will be the carrier material and how can be detected that correct delivery of drug is done Rafiq
Rafiq
if virus is killing to make ARTIFICIAL DNA OF GRAPHENE FOR KILLED THE VIRUS .THIS IS OUR ASSUMPTION
Anam
analytical skills graphene is prepared to kill any type viruses .
Anam
Any one who tell me about Preparation and application of Nanomaterial for drug Delivery
Hafiz
what is Nano technology ?
Bob Reply
write examples of Nano molecule?
Bob
The nanotechnology is as new science, to scale nanometric
brayan
nanotechnology is the study, desing, synthesis, manipulation and application of materials and functional systems through control of matter at nanoscale
Damian
Is there any normative that regulates the use of silver nanoparticles?
Damian Reply
what king of growth are you checking .?
Renato
What fields keep nano created devices from performing or assimulating ? Magnetic fields ? Are do they assimilate ?
Stoney Reply
why we need to study biomolecules, molecular biology in nanotechnology?
Adin Reply
?
Kyle
yes I'm doing my masters in nanotechnology, we are being studying all these domains as well..
Adin
why?
Adin
what school?
Kyle
biomolecules are e building blocks of every organics and inorganic materials.
Joe
how did you get the value of 2000N.What calculations are needed to arrive at it
Smarajit Reply
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Source:  OpenStax, Econometrics for honors students. OpenStax CNX. Jul 20, 2010 Download for free at http://cnx.org/content/col11208/1.2
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