Comparing Fixed Effects and Covariance Structure Estimators

Mette Ejrnæs and Anders Holm ()

No 2004-02, CAM Working Papers from University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics

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.

Pages: 17 pages
Date: 2004-01
New Economics Papers: this item is included in nep-ecm
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuieca:2004_02

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