Question 1

The random effects approach _____.

Accepted Answer

A)  cannot be used if the key explanatory variable is constant over time.
B)  is preferred to pooled OLS because RE is generally more efficient.
C)  is suitable if the Hausman test rejects the assumption that the unobserved effect is uncorrelated with the explanatory variables.
D)  is more convincing than fixed effects for policy analysis using aggregate data.E) A) and C)
F) C) and D)

Question 2

Which of the following types of variables cannot be included in a fixed effects model?

Accepted Answer

A)  Dummy variable
B)  Discrete dependent variable
C)  Time-varying independent variable
D)  Time-constant independent variableE) B) and D)
F) B) and C)

Question 3

Which of the following assumptions is required for obtaining unbiased fixed effect estimators?

Accepted Answer

A)  The errors are heteroskedastic.
B)  The errors are serially correlated.
C)  The explanatory variables are strictly exogenous.
D)  The unobserved effect is correlated with the explanatory variables.E) B) and C)
F) A) and C)

Question 4

A data set is called an unbalanced panel if it has missing years for at least some cross-sectional units in the sample.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is a difference between a fixed effects estimator and a first-difference estimator?

Accepted Answer

A)  The fixed effects estimators are always larger than the first difference estimators in a two-period panel data analysis.
B)  The fixed effects estimator is more efficient than the first-difference estimator when the idiosyncratic errors are serially uncorrelated.
C)  The first difference estimator is more sensitive to nonnormality and heteroskedasticity.
D)  The bias in the first difference estimator depends on the time period (T) of analysis while the bias in the fixed effect does not depend on T.E) B) and D)
F) B) and C)

Question 6

In a random effects model,we assume that the unobserved effect is correlated with each explanatory variable.

Accepted Answer

A) True 
 B)False

Question 7

An economist wants to study the effect of income on savings.He collected data on 120 identical twins.Which of the following methods of estimation is the most suitable method,if income is correlated with the unobserved family effect?

Accepted Answer

A)  Random effects estimation
B)  Fixed effects estimation
C)  Ordinary least squares estimation
D)  Weighted Least squares estimationE) B) and D)
F) None of the above

Question 8

Which of the following assumptions is required for obtaining unbiased random effect estimators?

Accepted Answer

A)  The idiosyncratic errors are heteroskedastic.
B)  The unobserved effect is independent of all explanatory variables in all time periods.
C)  The idiosyncratic errors are serially correlated.
D)  The unobserved effect is correlated with the explanatory variables.E) C) and D)
F) A) and B)

Question 9

The estimator obtained through regression on quasi-demeaned data is called the _____.

Accepted Answer

A)  random effects estimator
B)  fixed effects estimator
C)  hetroskedasticity-robust OLS estimator
D)  instrumental variables estimatorE) A) and D)
F) B) and C) A

Question 10

A pooled OLS estimator that is based on the time-demeaned variables is called the _____.

Accepted Answer

A)  random effects estimator
B)  fixed effects estimator
C)  least absolute deviations estimator
D)  instrumental variable estimatorE) All of the above
F) C) and D)

Question 11

The random effects estimate is identical to the fixed effects estimate if the estimated transformation parameter ,  ,in generalized least squares estimation that eliminates serial correlation between error terms is,_____.

Accepted Answer

A)  less than zero
B)  equal to zero
C)  equal to one
D)  greater than oneE) B) and D)
F) C) and D) C

Question 12

The value of the estimated transformation parameter in generalized least square estimation that eliminates serial correlation in error terms indicates whether the estimates are likely to be closer to the pooled OLS or the fixed effects estimates.

Accepted Answer

A) True 
 B)False  True

Question 13

Which of the following is true of the correlated random effects approach (CRE) ?

Accepted Answer

A)  The CRE approach assumes that the unobserved effect is uncorrelated with the observed explanatory variables.
B)  The CRE approach cannot be used if the regression model includes a time-constant explanatory variable.
C)  The CRE approach considers that the unobserved effect is correlated with the average level of explanatory variables.
D)  The CRE estimate equals the random effects estimate.E) C) and D)
F) None of the above

Question 14

Which of the following statements is true?

Accepted Answer

A)  Fixed effects estimation is not suitable when the unobserved cluster effect is correlated with one or more explanatory variables.
B)  Fixed effects approach is not applicable if the key explanatory variables change only at the level of the cluster.
C)  The ordinary least squares standard errors are incorrect when there is cluster effect.
D)  Random effects estimation can be applied to a cluster sample only if the unobserved cluster effect is correlated with one or more explanatory variables.E) B) and C)
F) C) and D)

Question 15

Pooled ordinary least squares estimation is commonly applied to cluster samples when eliminating a cluster effect via fixed effects is infeasible or undesirable.

Accepted Answer

A) True 
 B)False

Question 16

In the correlated random effects approach,the regression model includes _____.

Accepted Answer

A)  time averages as separate explanatory variables
B)  at least one dummy variable
C)  more than one endogenous explanatory variable
D)  an instrumental variableE) A) and D)
F) A) and B)

Question 17

Which of the following is a property of dummy variable regression?

Accepted Answer

A)  This method is best suited for panel data sets with many cross-sectional observations.
B)  The R-squared obtained from this method is lower than that obtained from regression on time-demeaned data.
C)  The degrees of freedom cannot be computed directly with this method.
D)  The major statistics obtained from this method are identical to that obtained from regression on time-demeaned data.E) All of the above
F) A) and D)

Question 18

The correlated random effects approach cannot be applied to models with many time-varying explanatory variables.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is a reason for using the correlated random effects approach?

Accepted Answer

A)  It provides unbiased and consistent estimators when the idiosyncratic errors are serially correlated.
B)  It provides unbiased and consistent estimators when the idiosyncratic errors are heteroskedastic.
C)  It provides a more efficient estimate than the fixed effects approach.
D)  It provides a way to include time-constant explanatory variables in a fixed effects analysis.E) A) and B)
F) A) and C)

Question 20

What should be the degrees of freedom (df) for fixed effects estimation if the data set includes 'N' cross sectional units over 'T' time periods and the regression model has 'k' independent variables?

Accepted Answer

A)  N-kT
B)  NT-k
C)  NT-N-k
D)  N-T-kE) None of the above
F) A) and B)

Exam 14: Advanced Panel Data Methods

The random effects approach _____.

Correct AnswerverifiedShow Answer

Which of the following types of variables cannot be included in a fixed effects model?

Correct AnswerverifiedShow Answer

Which of the following assumptions is required for obtaining unbiased fixed effect estimators?

Correct AnswerverifiedShow Answer

A data set is called an unbalanced panel if it has missing years for at least some cross-sectional units in the sample.

Correct AnswerverifiedShow Answer

Which of the following is a difference between a fixed effects estimator and a first-difference estimator?

Correct AnswerverifiedShow Answer

In a random effects model,we assume that the unobserved effect is correlated with each explanatory variable.

Correct AnswerverifiedShow Answer

An economist wants to study the effect of income on savings.He collected data on 120 identical twins.Which of the following methods of estimation is the most suitable method,if income is correlated with the unobserved family effect?

Correct AnswerverifiedShow Answer

Which of the following assumptions is required for obtaining unbiased random effect estimators?

Correct AnswerverifiedShow Answer

The estimator obtained through regression on quasi-demeaned data is called the _____.

Correct AnswerverifiedA

A pooled OLS estimator that is based on the time-demeaned variables is called the _____.

Correct AnswerverifiedShow Answer

The random effects estimate is identical to the fixed effects estimate if the estimated transformation parameter , ,in generalized least squares estimation that eliminates serial correlation between error terms is,_____.

Correct AnswerverifiedC

The value of the estimated transformation parameter in generalized least square estimation that eliminates serial correlation in error terms indicates whether the estimates are likely to be closer to the pooled OLS or the fixed effects estimates.

Correct AnswerverifiedTrue

Which of the following is true of the correlated random effects approach (CRE) ?

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Pooled ordinary least squares estimation is commonly applied to cluster samples when eliminating a cluster effect via fixed effects is infeasible or undesirable.

Correct AnswerverifiedShow Answer

In the correlated random effects approach,the regression model includes _____.

Correct AnswerverifiedShow Answer

Which of the following is a property of dummy variable regression?

Correct AnswerverifiedShow Answer

The correlated random effects approach cannot be applied to models with many time-varying explanatory variables.

Correct AnswerverifiedShow Answer

Which of the following is a reason for using the correlated random effects approach?

Correct AnswerverifiedShow Answer

What should be the degrees of freedom (df) for fixed effects estimation if the data set includes 'N' cross sectional units over 'T' time periods and the regression model has 'k' independent variables?

Correct AnswerverifiedShow Answer

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