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

Question

Quizplus · Accepted Answer

The random effects (RE) model is generally more efficient than pooled OLS because it accounts for the unobserved heterogeneity across entities.

The Random Effects Approach _____