RE: st: a simple panel data question: FE and RE

[Martin Weiss <martin.weiss@uni-tuebingen.de>]

Maybe one day, email will come with pictures: then statalisters will  
be able to distinguish between Maarten and Martin :-)

Quoting emanuele canegrati <emanuele.canegrati@hotmail.it>:


> As Martin said the best way is to imagine a model written in the   
> following fashion:
>
>
>
>
>
> Y = X*Beta + Z*mu + v
>
>
>
>
>
> where Z is the matrix of individual dummies of NTxT. So in your case  
>  you will obtain estimates of mu(1) and mu(2) coefficients.   
> Individual specific effect are unobservable (you don't see them in   
> the regression) and vary across individuals. If you neglet to   
> consider fixed effects as in the previous expression you obtain a   
> biased and inconsistent estimation of the relation between Y and X.   
> With FE option STATA produces automatically the outcome of an F test  
>  which tests the joint significance of individual dummies. This can   
> help you to better understand which is the actual relation between X  
>  and Y.
>
>
>
>
>
> Hope this help.
>
>
>
>
>
> Emanuele Canegrati
>
>
> > Date: Fri, 1 Aug 2008 23:03:56 +0100
> > From: maartenbuis@yahoo.co.uk
> > Subject: Re: st: a simple panel data question: FE and RE
> > To: statalist@hsphsun2.harvard.edu
> >
> > One way of thinking about fixed effects (in a linear model) is that a
> > dummy is added for each unit (minus one reference unit). These dummies
> > absorb all the observed and unobserved differences between the units,
> > so it does take the across variation into account. However, you can no
> > longer describe what a unit level variable, like the average value of
> > X, does to Y. In a random effects model you can describe the effects of
> > unit level variables, but at a price: you now have to make a number of
> > assumptions you did not have to make with a fixed effects model. The
> > assumption that people like least is the assumption that the random
> > effect is uncorrelated with the observed variables.
> >
> > -- Maarten
> >
> > --- yjh jsh  wrote:
> >
> > > Dear all,
> > > I have a newbie question here. sorry for this.
> > >
> > > I have a panel data with variable Y and X for two units for example.
> > > unit year X Y
> > > 1 1991 1 20
> > > 1 1992 2 19
> > > 1 1993 3 21
> > > 2 1991 10 40
> > > 2 1992 11 40
> > > 2 1993 11 39
> > >
> > > That is, there is a larger cross variation than within variation
> > >
> > > As i understand, FE only address the variation within units. So, if I
> > > use FE, i will not find a significant relationship between x and y
> > > based on the nature of the hypothectical data.
> > > but this finding does not take into account the fact Y takes higher
> > > vaue in unit 2 because x takes higher value in that unit. That is, fe
> > > failed to represent the across-variation.
> > >
> > > Is my understanding correct?
> > >
> > > Sorry for this simple question.
> > >
> > > best
> > > *
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> > > * http://www.ats.ucla.edu/stat/stata/
> >
> > -----------------------------------------
> > Maarten L. Buis
> > Department of Social Research Methodology
> > Vrije Universiteit Amsterdam
> > Boelelaan 1081
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> > The Netherlands
> >
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> >
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> >
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> > -----------------------------------------
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