Deck 14: Advanced Panel Data Methods

Question 1

Which of the following assumptions is required for obtaining unbiased fixed effect estimators?

A)The errors are heteroskedastic.
B)The errors are serially correlated.
C) The explanatory variables are strictly exogenous.
D) The unobserved effect is correlated with the explanatory variables.

Answer 1

C
Explanation: Under a strict exogeneity assumption on the explanatory variables, the fixed effects estimator is unbiased.

Question 2

The random effects approach _____.

A)cannot be used if the key explanatory variable is constant over time
B)is preferred to pooled OLS because RE is generally more efficient
C) is suitable if the Hausman test rejects the assumption that the unobserved effect is uncorrelated with the explanatory variables
D) is more convincing than fixed effects for policy analysis using aggregate data

Answer 2

B
Explanation: RE is preferred to pooled OLS because RE is generally more efficient.

Question 3

The appropriate time average of {y_it} is​ , where T_i is:

A)​the dummy variable, which equals one when a complete set of data is observed.
B)the total number of time periods for cross-sectional observation i.​
C) ​the total number of complete time periods for cross-sectional observation i.
D) ​the explanatory variable for cross-sectional observation i.

Answer 3

C
Explanation: The appropriate time average of {y_it} is ​, where T_i is the total number of complete time periods for cross-sectional observation i.

Question 4

In the correlated random effects approach, the regression model includes _____.

A)time averages as separate explanatory variables
B)at least one dummy variable
C) more than one endogenous explanatory variable
D) an instrumental variable

Question 5

The random effects estimate is identical to the fixed effects estimate if the estimated transformation parameter , , in generalized least squares estimation that eliminates serial correlation between error terms is, _____.

A)less than zero
B)equal to zero
C) equal to one
D) greater than one

Question 6

An economist wants to study the effect of income on savings. He collected data on 120 identical twins. Which of the following methods of estimation is the most suitable method, if income is correlated with the unobserved family effect?

A)Random effects estimation
B)Fixed effects estimation
C) Ordinary least squares estimation
D) Weighted Least squares estimation

Question 7

What should be the degrees of freedom (df) for fixed effects estimation if the data set includes 'N' cross sectional units over 'T' time periods and the regression model has 'k' independent variables?

A)N-kT
B)NT-k
C) NT-N-k
D) N-T-k

Question 8

To obtain an estimator that reproduces the fixed effects estimates on the time-varying explanatory variables, _____.

A)​one must check whether the time-demeaning allows one to interpret the estimates
B)​one must check whether time-constant variables can be included in the fixed effects
C) ​one must be able to interpret the time variations
D) ​one must be careful in constructing the time averages

Question 9

Which of the following is a property of dummy variable regression?

A)This method is best suited for panel data sets with many cross-sectional observations.
B)The R-squared obtained from this method is lower than that obtained from regression on time-demeaned data.
C) The degrees of freedom cannot be computed directly with this method.
D) The major statistics obtained from this method are identical to that obtained from regression on time-demeaned data.

Question 10

A pooled OLS estimator that is based on the time-demeaned variables is called the _____.

A)random effects estimator
B)fixed effects estimator
C) least absolute deviations estimator
D) instrumental variable estimator

Question 11

The estimator obtained through regression on quasi-demeaned data is called the _____.

A)random effects estimator
B)fixed effects estimator
C) hetroskedasticity-robust OLS estimator
D) instrumental variables estimator

Question 12

Which of the following is a difference between a fixed effects estimator and a first-difference estimator?

A)The fixed effects estimators are always larger than the first difference estimators in a two-period panel data analysis.
B)The fixed effects estimator is more efficient than the first-difference estimator when the idiosyncratic errors are serially uncorrelated.
C) The first difference estimator is more sensitive to nonnormality and heteroskedasticity.
D) The bias in the first difference estimator depends on the time period (T) of analysis while the bias in the fixed effect does not depend on T.

Question 13

Which of the following statements is true?

A)Fixed effects estimation is not suitable when the unobserved cluster effect is correlated with one or more explanatory variables.
B)Fixed effects approach is not applicable if the key explanatory variables change only at the level of the cluster.
C) The ordinary least squares standard errors are incorrect when there is cluster effect.
D) Random effects estimation can be applied to a cluster sample only if the unobserved cluster effect is correlated with one or more explanatory variables.

Question 14

In a random effects model, we assume that the unobserved effect is correlated with each explanatory variable.

Question 15

Which of the following is a reason for using the correlated random effects approach?

A)It provides unbiased and consistent estimators when the idiosyncratic errors are serially correlated.
B)It provides unbiased and consistent estimators when the idiosyncratic errors are heteroskedastic.
C) It provides a more efficient estimate than the fixed effects approach.
D) It provides a way to include time-constant explanatory variables in a fixed effects analysis.

Question 16

Which of the following types of variables cannot be included in a fixed effects model?

A)Dummy variable
B)Discrete dependent variable
C) Time-varying independent variable
D) Time-constant independent variable

Question 17

A manufacturing company is sampled from a population of manufacturing companies, and then the data on at least two employees are recorded. This is an example of:

A)​matched pair samples.
B)​random samples.
C) ​cluster samples.
D) ​nonrandom samples.

Question 18

Which of the following assumptions is required for obtaining unbiased random effect estimators?

A)The idiosyncratic errors are heteroskedastic.
B)The unobserved effect is independent of all explanatory variables in all time periods.
C) The idiosyncratic errors are serially correlated.
D) The unobserved effect is correlated with the explanatory variables.

Question 19

Which of the following is true of the correlated random effects approach (CRE)?

A)The CRE approach assumes that the unobserved effect is uncorrelated with the observed explanatory variables.
B)The CRE approach cannot be used if the regression model includes a time-constant explanatory variable.
C) The CRE approach considers that the unobserved effect is correlated with the average level of explanatory variables.
D) The CRE estimate equals the random effects estimate.

Question 20

A data set is called an unbalanced panel if it has missing years for at least some cross-sectional units in the sample.

Question 21

The correlated random effects approach cannot be applied to models with many time-varying explanatory variables.

Question 22

The value of the estimated transformation parameter in generalized least square estimation that eliminates serial correlation in error terms indicates whether the estimates are likely to be closer to the pooled OLS or the fixed effects estimates.

Question 23

The size of all the clusters obtained from a population are always the same.
​

Question 24

In a true cluster sample, the individuals are first drawn from the clusters.​

Question 25

Pooled ordinary least squares estimation is commonly applied to cluster samples when eliminating a cluster effect via fixed effects is infeasible or undesirable.