Comparing Fixed Effects and Covariance Structure Estimators
In this paper we compare the traditional econometric fixed effect/first difference estimator with the maximum likelihood estimator implied by covariance structure models for panel data. Our findings are that the maximum likelihood estimator is remarkable robust to mis-specifications, however in general the fixed estimator is preferable in small samples. Furthermore, we argue that we can use the Hausman test as a test of consistency of the maximum likelihood estimator. Finally we show that the covariance structure models is not identified in the case of time-invariant independent variables.
Year of publication: |
2004-01
|
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Authors: | Ejrnæs, Mette ; Holm, Anders |
Institutions: | Centre for Applied Microeconometrics (CAM), Økonomisk Institut |
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