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st: Re: Random/fixed effects


From   "R.E. De Hoyos" <redeho@hotmail.com>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: Re: Random/fixed effects
Date   Sun, 23 Apr 2006 18:59:07 +0100

Peter,

The Random and Fixed effects are panel data models. Basically, in these models, you are assuming that the residual is composed by two different parts; one of them is completely random and the other is a component that is inherent to the cross-sectional variable (either fixed or random).

Total variance in the panel data models can be divided into the variation due to differences between cross-sectional units and differences within cross-sectional units (i.e. time). Without this structure you cannot estimate the models you mentioned. For instance, the fixed effects (FE) model will capture ALL the variation between cross-sectional units exploiting the time variation. With a cross-section, including a dummy for each of your IDs (a way of estimating the FE model) will leave you with no degrees of freedom to estimate your variables of interest.

Rafa
PS. You might want to read Chapter 13 in Wooldridge "Introductory Econometrics"

----- Original Message ----- From: "peter harper" <pharper11@yahoo.co.uk>
To: <statalist@hsphsun2.harvard.edu>
Sent: Sunday, April 23, 2006 6:24 PM
Subject: st: Random/fixed effects



Dear Statalist

I have a cross-section data. I want to find out the
spillover effects of x1, x2 and the impact of other
variables on y.
1) Is firm random effects the most appropriate
estimation method.
2) Is random effects the most appropriate method.
3) Is fixed effects the most appropriate method
If 1, 2 or 3 applies, where would I find the appropriate command
please in stata.

Thanks in advance
Peter

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