Sunil,
Date sent: Tue, 30 Nov 2004 09:59:44 -0800 (PST)
From: Sunil W <[email protected]>
Subject: st: fixed effects and random effects
To: [email protected]
Send reply to: [email protected]
> Hi
> I have a couple of questions:
>
> One, when I run a random effects model on my data, I
> get sigma_u =0. How do I interpret this? Does it mean
> that the random effects model is not appropriate for
> this data? The fixed effect model seems to work fine.
It means that the estimated variance of the error components was zero
or (more likely) negative. This can happen using the method Stata's
xtreg,re uses. More reasonably, it probably just means that it is
very, very small.
The important thing to beware of is that when this happens, random
effects reduces to pooled ols. (Try running a pooled ols regression
with the same dep var and regressors and see.)
Cheers,
Mark
> Two, I have an unbalanced panel data in which the
> number of observations per firm ranges from 1 to 60.
> Would this lead to any bias in my fixed effects
> estimates, especially since some firms have only 1
> observation? If so, how do I get around the problem?
>
> Thanks
> S
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Prof. Mark E. Schaffer
Director
Centre for Economic Reform and Transformation
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS UK
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