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Inference on time-invariant variables using panel data: a pretest estimator

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  • Jean-Bernard Chatelain

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Kirsten Ralf

    (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)

Abstract

For static panel data models that include endogenous time-invariant variables corre- lated with individual e¤ects, exogenous averages over time of time-varying variables can be internal instruments. To pretest their exogeneity, we .rst estimate a random e¤ects model that includes all averages over time of time-varying variables (Mundlak, 1978; Kr- ishnakumar, 2006). Internal instruments are then selected if their parameter is statistically di¤erent from zero (Mundlak, 1978; Hausman and Taylor, 1981). Finally, we estimate a Hausman-Taylor (1981) model using these internal instruments. We then evaluate the bi- ases of currently used alternative estimators in a Monte-Carlo simulation: repeated between, ordinary least squares, two-stage restricted between, Oaxaca-Geisler estimator, .xed e¤ect vector decomposition, and random e¤ects (restricted generalized least squares).

Suggested Citation

  • Jean-Bernard Chatelain & Kirsten Ralf, 2021. "Inference on time-invariant variables using panel data: a pretest estimator," Working Papers halshs-01719835, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01719835
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01719835v2
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    More about this item

    Keywords

    Time-invariant variables; Panel data; Time-series cross-sections; Pretest estimator; Mundlak estimator; Hausman-Taylor estimator;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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