## Info

Degrees of freedom 3,135 3,763

*3774 observations; standard errors are in parentheses.

Reproduced from Cheng Hsiao, Analysis of Panel Data, Cambridge University Press, 1986, p. 42. Original source: J. A. Hausman, "Specification Tests in Econometrics," Econometrica, vol. 46, 1978, pp. 1251-1271.

Degrees of freedom 3,135 3,763

*3774 observations; standard errors are in parentheses.

Reproduced from Cheng Hsiao, Analysis of Panel Data, Cambridge University Press, 1986, p. 42. Original source: J. A. Hausman, "Specification Tests in Econometrics," Econometrica, vol. 46, 1978, pp. 1251-1271.

654 PART THREE: TOPICS IN ECONOMETRICS

c. On the basis of the data given in the table, which model, if any, would you choose?

### 16.11. Refer to the data in Table 1.1.

a. Let Y = eggs produced (in millions) and X = price of eggs (cents per dozen). Estimate the model: Yi = 0\ + 02Xi + ui for the years 1990 and 1991 separately.

b. Pool the observations for the 2 years and estimate the pooled regression. What assumptions are you making in pooling the data?

c. Use the fixed effects model, distinguishing the 2 years, and present the regression results.

d. Can you use the fixed effects model, distinguishing the 50 states? Why or why not?

e. Would it make sense to distinguish both the state effect and the year effect? If so, how many dummy variables would you have to introduce?

f. Would the error components model be appropriate to model the production of eggs? Why or why not? See if you can estimate such a model using, say, Eviews.

16.12. Continue with exercise 16.11. Before deciding to run the pooled regression, you want to find out whether the data are "poolable." For this purpose you decide to use the Chow test discussed in Chapter 8. Show the necessary calculations involved and determine if the pooled regression makes any sense.

a. Estimate the Grunfeld investment function for GE, GM, U.S. Steel, and Westinghouse individually. The results of pooling all the 80 observations are already given in (16.3.1).

b. To determine whether the pooled regression (16.3.1) is appropriate, you decide to conduct the Chow test discussed in Chapter 8. Carry out this test. Hint: Get the RSS from the pooled regression, get the RSS from each of the four investment functions, and then apply the Chow test.

c. From the Chow test, what conclusions do you draw? If your conclusion is not to pool the data, what then can you say about the utility of panel data regression techniques?

16.14. Table 16.5 gives data on the civilian unemployment rate Y (%) and manufacturing hourly compensation in U.S. dollars X (index, 1992 = 100) for Canada, the United Kingdom, and the United States for the period 1980-1999. Consider the model:

a. A priori, what is the expected relationship between Y and X? Why?

b. Estimate the model given in (1) for each country.

c. Estimate the model, pooling all the 60 observations.

d. Estimate the fixed effects model.

e. Estimate the error components model.

f. Which is a better model, FEM or ECM? Justify your answer.

Problems

CHAPTER SIXTEEN: PANEL DATA REGRESSION MODELS 655

TABLE 16.5 UNEMPLOYMENT RATE AND HOURLY COMPENSATION IN MANUFACTURING, IN THE UNITED STATES, CANADA, AND THE UNITED KINGDOM, 1980-1999

United States

United Kingdom

TABLE 16.5 UNEMPLOYMENT RATE AND HOURLY COMPENSATION IN MANUFACTURING, IN THE UNITED STATES, CANADA, AND THE UNITED KINGDOM, 1980-1999

United States

United Kingdom

servation

Compensation, \$/hour

Unemployment,

%

Compensation, \$/hour

Unemployment,

%

Compensation, \$/hour

Unemployment,

% 