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How would you control for these person-specific and time-specific effects in a panel data regression? d)...

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Advance Math

How would you control for these person-specific andtime-specific effects in a panel data regression? d) Can theregression be used to estimate the effect of gender on anindividual’s earnings? Explain. e) Can the regression be used toestimate the effect of the national unemployment rate on anindividual’s earnings? Explain. f) In the context of the regressionyou suggested for part (c), explain why the regression error for agiven individual might be serially correlated. g) In the context ofthe regression you suggested for part (c), explain why theregression error across individuals for a given point in time mightbe correlated.

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In statistics and econometrics panel data orlongitudinal data are multidimensionaldata involving measurements over timePanel data contain observations of multiplephenomena obtained over multiple time periods for the same firms orindividualsIn panel data the same crosssectional unit industry firm andcountry is surveyed over time so we have data which ispooled over space as well as timeReasons for using Panel Data1 Panel data can take explicit account of individualspecificheterogeneity individual here means related to themicrounit2 By combining data in two dimensions panel data gives moredata variation less collinearity and more degrees of freedom3 Panel data is better suited than crosssectional data forstudying the dynamics of change For example it is wellsuited to understanding transitionbehaviour for examplecompany bankruptcy or merger4 It is better in detecting and measuring the effects whichcannot be observed in either crosssection or timeseries data5 Panel data enables the study of more complex behaviouralmodels for example the effects of technological change oreconomic cycles6 Panel data can minimise the effects of aggregation bias fromaggregating firms into broad groupsIf all the crosssectional units have the same number of timeseries observations the panel is balanced if not it isunbalancedA matrix of balanced panel data observations on variable y Ncrosssectional observations T time series observationsSuppose y is    See Answer
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