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

Quizplus · Accepted Answer

The correlated random effects approach (CRE) assumes that the unobserved effect is correlated with the average level of explanatory variables. This approach can be used even if the regression model includes time-constant explanatory variables. The CRE estimate is different from the random effects estimate. Therefore, options A, B, and D are incorrect.

Which of the Following Is True of the Correlated Random