Re: st: Fixed effects model, Hausman test (panel data)

[Zia Hydari <hydari@post.harvard.edu>]

BTW, I used Stata command 'hausman' on output from "xtreg , fe" vs "xtreg , re".

Thanks
Zia

On Mon, Apr 11, 2011 at 10:35 PM, Zia Hydari <hydari@post.harvard.edu> wrote:
> (1) I understand that to estimate a fixed-effect linear model,
> independent variables (of interest) must have some variation.  Is it
> necessary that there should be variation in each and every
> cross-sectional unit?  If yes, should cross-sectional units with no
> variation be eliminated from the dataset?
>
> To be slightly more specific, we have data on products that may get
> "impaired" at some point in their life.  Once impaired, the product
> remains impaired for the rest of its life.  We use a dummy variable:
> impaired==0 (not impaired yet) and impaired==1 (already impaired).
>
> The problem is that some products are impaired from day 1, so there is
> no variation for these specific products for the "impaired" dummy
> variable.
>
> The value of the product depreciates over time.  However, we are
> trying to find if product impairment causes a further decline in the
> value of the product (then there may benefit in delaying impairment).
>
> (2) A Hausman test indicates that a random effects model is
> appropriate.  We find it surprising that the individual-specific
> effect has no correlation with independent variables.  What are some
> things worth checking to make sure that a random effects is indeed
> appropriate.
>
> Regards,
> Zia
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