Alternative transformations to eliminate fixed effects

MJCM (Marno) Verbeek*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

1 Citation (Scopus)

Abstract

In a panel data model with fixed individual effects, a number of alternative transformations are available to eliminate these effects such that the slope parameters can be estimated from ordinary least squares on transformed data. In this note we show that each transformation leads to algebraically the same estimator if the transformed data are used efficiently (i.e. if GLS is applied). If OLS is used, however, differences may occur and the routinely computed variances, even after degrees of freedom correction, are incorrect. In addition, it may matter whether “redundant” observations are used or not.

Original languageEnglish
Pages (from-to)205-211
Number of pages7
JournalEconometric Reviews
Volume14
Issue number2
DOIs
Publication statusPublished - 1 Jan 1995
Externally publishedYes

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