Thanks for your reply. What if the omitted variables
are not correlated with observed covariates?
Regards,
Menale
--- Scott Cunningham <[email protected]> wrote:
> 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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