b) Conduct a Hausman test to determine which model is appropriate FE or RE

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

Homework One

Panel Data – Fixed and Random Effect Models

1. Data Set: Grunfeld

a)      Run an OLS Model with all data without any panel options

The OLS Model:         

Copy-paste the Eviews Estimation window here.

b)     Conduct a Hausman test to determine which model is appropriate FE or RE.

Copy-Paste the test result window from Eviews here

c)      Run a Fixed Effect model

The FE Model:            

Note that we are conducting a two-way (  ) FE model here. Copy-paste the Eviews Estimation window here. 

d)     Test whether the FEs are relevant Copy-Paste the test result window from Eviews here 

e)      Show the cross-section and period FEs Copy-Paste both the test result windows from Eviews here 

f)       Run a RE model The RE Model:           

Note that we are conducting a two-way ( ) RE model here. Copy-paste the Eviews Estimation window here.

 

g)      Show the cross-section and period REs Copy-Paste both the test result windows from Eviews here

2. Dataset: Seatbelt

The Model                               

Where

Y = fatalityrate

X = sb_usage

Z = Controls – speed70, ba08, income, age, and primary 

a)      Create Summary Statistics Table

Variable	Obs	Mean	Std. Dev	Max	Min	Skewness	Kurtosis
fatalityrate
sb_usage
speed70
ba08
income
Age
primary

 

b)     Determine whether your model is a Fixed-Effect model or a Random-Effect model (replace the xx in the table with results from the Eviews)

Table 3: Hausman Test

Test Summary	Fatality	Reject the Null Hypothesis
Cross-Section Random	xx.xx (x.xx)	Yes/No
Period Random	xx.xx (x.xx)	Yes/No
Cross-section and Period Random	xx.xx (x.xx)	Yes/No

Note: Chi-Sq. Test Statistics and p-values are reported

Based on the probability, the fixed/random effect model fits best at 1% / 5% / 10% significant level. (Circle the correct answers based on the Eviews results.)

c)      Create a Table Fixed or Random Effect Panel Estimations (FE or RE determined in Q2.b.)

Dependent Var: fatalityrate	I	II	III	IV
sb_usage
speed70		----
ba08		----
income		----	----
age		----	----
primary		----	----
Observation Numbers
Adj. R2
F-Stat (p-value)
DW
Cross-Section FE or RE	No	Yes	Yes	Yes
Period FE or RE	No	Yes	Yes	Yes

Note: ***, **, * implies statistical significance at 1%, 5%, and 10% respectively.

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