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Comparing Fixed Effects and Covariance Structure Estimators

Author

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  • Mette Ejrnæs

    (Institute of Economics, University of Copenhagen)

  • Anders Holm

    (Department of Sociology, University of Copenhagen)

Abstract

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.

Suggested Citation

  • Mette Ejrnæs & Anders Holm, 2004. "Comparing Fixed Effects and Covariance Structure Estimators," CAM Working Papers 2004-02, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  • Handle: RePEc:kud:kuieca:2004_02
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    File URL: http://www.econ.ku.dk/cam/wp0910/wp0203/2004-02.pdf/
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    Cited by:

    1. Anders Holm & Mads Meier Jæger & Morten Pedersen, 2008. "Unobserved Heterogeneity in the Binary Logit Model with Cross-Sectional Data and Short Panels: A Finite Mixture Approach," CAM Working Papers 2009-04, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.

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