Chapter 14: Problem 8
Consider the unobserved effects panel data model for a random draw \(i\), where \(a_{t}\) denotes different year intercepts: $$\begin{aligned}y_{i t}=& \alpha_{2} d_{2}+\ldots+\alpha_{T} d T+\beta_{1} x_{i t}+\beta_{2} x_{i t 2}^{2}+\gamma_{1} z_{i 1}+\gamma_{2} z_{i 2}+\gamma_{3} z_{i 2}^{2} \\\&+\gamma_{4} x_{i t} z_{i 1}+a_{i}+u_{i t}, t=1,2, \ldots, T\end{aligned}$$ Assuming a balanced panel, write down, for a given \(i\), the CRE equation that you would estimate using the RE estimator. Which parameter estimates should be identifical to the fixed effects estimates?
Short Answer
Step by step solution
Key Concepts
These are the key concepts you need to understand to accurately answer the question.