Wooldridge, Ch 13

Read intro to Ch 13.

Read Section 13.1

Read Section 13.2

Read Section 13.3

Read Section 13.4

Read Section 13.5

Wooldridge, Chapter 14

Fixed effects transformation:

With more explanatory variables,

Study Example 14.1

Note the following:

1) Several possible definitions of R2:

2) Time constant variables can be added when interacted with variables that change over time:

3) We cannot estimate the effects of a variable whose change over time is constant:

The Dummy Variable Regression

Run the following code in Stata:

use http://fmwww.bc.edu/ec-p/data/wooldridge/wagepan

iis nr

tis year

gen edd81 = educ*d81

gen edd82 = educ*d82

gen edd83 = educ*d83

gen edd84 = educ*d84

gen edd85 = educ*d85

gen edd86 = educ*d86

gen edd87 = educ*d87

qui tab nr, gen(nrdummy)

set matsize 2000

reg lwage expersq union married d81-d87 edd81-edd87 nrdummy*

Random Effects Models

Random Effects of Fixed Effects?

See below for Hausman test.