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st: re: time dummies in random effects model

From   Kit Baum <[email protected]>
To   [email protected]
Subject   st: re: time dummies in random effects model
Date   Sun, 24 Jul 2005 09:44:53 -0400

Alice said

But, in case of small samples does it not use up some degrees of freedom?

>From: David Greenberg <[email protected]>
>Reply-To: [email protected]
>To: [email protected]
>Subject: Re: st: time dummy in random-effects model
>Date: Wed, 13 Jul 2005 16:53:04 -0400
>The purpose of the time dummies is to take into account effects that may
>influence all cases in a given year to the same amount. If you think
>they are likely to exist, then it would be wise to put them in. This can
>help to eliminate a possible source of spuriousness due to common trends
>in observed variables. David Greenberg, Sociology Department, New York

Of course it does. If you relax the constraint that all time periods share the same intercept (and random individual effects vary around that intercept) and estimate (T-1) additional parameters, you use (T-1) additional d.f. But if the constraint that those T parameters are equal is rejected by the data, you should not impose it.

Kit Baum, Boston College Economics

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