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Re: st: Random effetcs and unobserved heterogeneity
On Sep 8, 2006, at 3:30 PM, menale kassie wrote:
Dear All,
Does the random effects model address concenrs of
omitted variables (e.g. unobserved household
heterogeneity)?
It depends on what you mean by address. If the omitted variables are
correlated with the included covariates, random effects estimators
will not be unbiased and consistent. The random effects model
explicitly assumes that the omitted variables are uncorrelated with
covariates in the model. This is covered thoroughly in Wooldridge's
panel and cross-section textbook (which I don't have with me), and
Cameron and Trivedi (which I do have with me) in chapter 22.
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