Fixed, Random, or Something in Between? – A Variant of HAUSMAN's Specification Test for Panel Data Estimators

Manuel Frondel and Colin Vance

No 160, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: This paper proposes a variant of the classical HAUSMAN specification test commonly employed to decide whether the estimation of a random-effects model is a viable alternative to estimating fixed effects. Whereas the classical test probes the equality of fixed- and random effects, the proposed variant focuses on the equality of between-groups and fixed-effects coefficients. While both test procedures lead to the same conclusions, the panel model specification underlying our testing strategy facilitates the simultaneous estimation of the fixed- and between-groups effects. As a consequence, we are able to examine both the equality of the whole range of coefficients as well as that of individual variables. The usefulness of the test is illustrated using a panel of household travel data for Germany.

Keywords: Specification tests; fuel price elasticity (search for similar items in EconPapers)
JEL-codes: C12 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (29)

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Journal Article: Fixed, random, or something in between? A variant of Hausman's specification test for panel data estimators (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:160

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