1. Advanced Panel Data Methods1 Econometrics 2 Advanced Panel Data Methods I

2. Advanced Panel Data Methods 2 Panel Data Methods Last time: Panel data concepts and the two-period case (13.3-4) Unobserved effects model: Time-invariant and idiosyncratic effects Omitted variables bias (heterogeneity bias) First-difference estimation Policy analysis with two-period panel data Today: Panel data with more periods and fixed effects estimation (13.5, 14.1) First-differencing with more than two periods Within transformation Dummy variable regression A simulated illustration Example: Job training grants.

3. Advanced Panel Data Methods 3 Data structure and model

4. Advanced Panel Data Methods 4 Three approaches to fixed effect estimation

5. Advanced Panel Data Methods 5 Three approaches to fixed effect estimation (2)

6. Advanced Panel Data Methods 6 Three approaches to fixed effect estimation (3)

7. Advanced Panel Data Methods 7 Comparison of fixed effect approaches

8. Advanced Panel Data Methods 8 Comparison of fixed effect approaches (2)

9. Advanced Panel Data Methods 9 A simulated illustration: n=5, T=3

10. Advanced Panel Data Methods 10 Case 1: a and x are positively correlated: Cross- plots of levels and deviations from time-averages

11. Advanced Panel Data Methods 11 Case 1: a and x are positively correlated: Analytical graph

12. Advanced Panel Data Methods 12 Case 2: a and x are negatively correlated

13. Advanced Panel Data Methods 13 Case 3: a and x are uncorrelated

14. Advanced Panel Data Methods 14 Job training example with three periods Example: The effect of a grant to firms for job training. Aim of program: Enhance the productivity of workers in the firm. Data for 1987, 1988 and 1989. Effect of grant might extend over time. Model: Estimate by Within estimation and FD estimation. Use panel data module of PcGive.

15. Advanced Panel Data Methods 15 Next time Monday! Random effects models Applying panel data methods to other data structures Wooldridge sec. 14.2-3. Exercises this week!