- Fixed effects estimation
econometricsand statisticsthe fixed effects estimator (also known as the within estimator) is an estimatorfor the coefficients in panel dataanalysis. If we assume fixed effects, we impose time independent effects for each entity.
Such models assist in controlling for unobserved
heterogeneity, when this heterogeneity is constant over time: typically the ethnicity, the year and location. This constant can be removed from the data, for example by subtracting each individual's means from each of his observations before estimating the model.
random effects modelmakes the assumption that the individual effects are randomly distributed. It is thus "not" the opposite of a fixed effects model. When the random effect is also assumed constant over time, we get fixed effects (i.e. a fixed effects model is a special case of random effects model). If the random effects assumption holds, the random effects model is more efficient than the fixed effects model. However, if this additional assumption does not hold (ie, if the Durbin-Wu test fails, the random effects model is not consistent.
Formally the model is
where is the dependent variable observed for individual i at time t, is the vector of coefficients, is a vector of
regressors, is the individual effect and is the error term.
and the estimator is
where is the zero-mean regressor, and is the zero-mean dependent variable.
Random effects model
* [http://www.personal.ceu.hu/departs/personal/Gabor_Kezdi/WorkingPapers/FE-RobustSE-StatSzle.pdf Robust Standard Error Estimation In Fixed-Effects Panel Models by Gabor Kezdi]
* [http://www.jr2.ox.ac.uk/bandolier/booth/glossary/fixed.html Fixed effect model at Bandolier (Oxford EBM website)]
* [http://teaching.sociology.ul.ie/DCW/confront/node45.html Fixed and random effects models]
* [http://www.ioa.pdx.edu/newsom/mlrclass/ho_randfixd.doc Distinguishing Between Random and Fixed: Variables, Effects, and Coefficients]
* [http://www.pitt.edu/~SUPER1/lecture/lec1171/012.htm How to Conduct a Meta-Analysis: Fixed and Random Effect Models]
* [http://www.statsoft.com/textbook/glosf.html Fixed Effects (in ANOVA)]
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