Ch15 Test Bank Answers Panel Data Models

File: Chapter 15 – Panel Data Models

Multiple Choice

1. What is the primary advantage of using panel data rather than a large cross- section data set collected over time?

a. It allows you to control for individual heterogeneity.

b. It allows the effects of legislation to be estimated.

c. It gives you more degrees of freedom.

d. It allows coefficients to vary over time.

2. If N is the number of individuals observed in each of T time periods, what is generally true of a “short, wide” panel?

a. T > N

b. N > T

c. N = T

d. N^1/2 < T²

3. If N is the number of individuals observed in each of T time periods, what is generally true of a “long, narrow” panel?

a. T > N

b. N > T

c. N = T

d. N^1/2 < T²

4. What is the difference between balanced and unbalanced panels?

a. Unbalanced panels have some observations missing, balanced do not.

b. Balanced panels are demographically representative of the population being studied, unbalanced are not.

c. Balanced panels have an equal number of observations above and below the mean of the dependent variable, unbalanced panels are skewed.

d. A balanced panel has T = N, an unbalanced panel has N>T or N<T.

5. Unobserved, individual specific, time-invariant random errors are called _____.

a. idiosyncratic errors

b. random effects

c. fixed effects

d. unobserved heterogeneity

6. Random errors that vary across individuals and over time are called _____.

a. idiosyncratic errors

b. random effects

c. fixed effects

d. unobserved heterogeneity

7. When a regression error has two components, one for the individual and one for the regression, it is called a (an) _____ model.

a. error components

b. pooled

c. fixed effects

d. random effects

8. Suppose a simple panel data regression model: , where i = 1, …, N and t = 1, 2. If the average is taken between the two time periods, the OLS estimator of is called the _____ estimator.

a. difference

b. within

c. fixed effect

d. random effect

9. The terminology _____ estimator is used because we are treating individual differences as parameters that can be estimated.

a. fixed effect

b. random effect

c. difference

d. within

10. The appropriate test to use to test for unobserved heterogeneity in a fixed effect model is a _____.

a. t-

b. F-

c.

d. Chow

11. Which of these assumptions indicates homoskedasticity?

a. E(e_it) = 0

b. var(e_it) = E(e²_it) = ^

c. cov(e_it, e_js) = E(e_it, e_js) = 0 for i j or t s

d. cov(e_it, x_2it) = 0

12. Which of these assumptions means all error terms are uncorrelated?

a. E(e_it) = 0

b. var(e_it) = E(e²_it) = ^

c. cov(e_it, e_js) = E(e_it, e_js) = 0 for i j or t s

d. cov(e_it, x_2it) = 0

13. Which of these assumptions means the errors are uncorrelated with all x’s?

a. E(e_it) = 0

b. var(e_it) = E(e²_it) = ^

c. cov(e_it, e_js) = E(e_it, e_js) = 0 for i j or t s

d. cov(e_it, x_2it) = 0

14. Which of the following assumptions must be made in order to use the pooled least squares estimator, but is relaxed in the cluster robust model?

a. E(e_it) = 0

b. var(e_it) = E(e²_it) = ^

c. cov(e_it, e_js) = E(e_it, e_js) = 0 for i j or t s

d. cov(e_it, x_2it) = 0

15. Which of the following is not an estimation technique utilizing panel data?

a. A pooled model

b. Fixed effects

c. Random effects

d. Probit

16. Suppose you have a long, narrow panel of data and estimate a single equation with indicator variables and interaction terms for the individuals. In doing this, what assumption from the pooled model have you maintained?

a. Coefficients on variables are equal across individuals.

b. Errors are uncorrelated with any x’s.

c. Expected value of errors are zero.

d. Variances of error terms are equal across individuals.

17. Suppose you have a long, narrow panel of data and estimate a single equation with indicator variables and interaction terms for the individuals. In doing this, what assumption from the pooled model have you relaxed?

a. Coefficients on variables are equal across individuals.

b. Errors are uncorrelated with any x’s.

c. Expected value of errors are zero.

d. Variances of error terms are equal across individuals.

18. For a random effect model the least squares estimator is unbiased and consistent. The errors can be corrected for potential heterogeneity using _____, but the estimator with minimum variance is _____.

a. cluster-robust standard errors; GLS

b. White’s correction; ML

c. 2SLS; fixed effects

d. cluster-robust standard errors; pooled

19. Which of the following is not a reason random effects (RE) results may be preferred to fixed effects (FE)?

a. RE accounts for the random sampling process that generated the data.

b. RE is a GLS estimator so, in large samples, it has a smaller variance than FE, which is a least squares estimator.

c. RE produces a coefficient for race, gender, or other individual characteristics that are constant over time.

d. RE estimates are more robust in the case of endogenous regressors.

20. How do you test for endogenous regressors, or correlation between the error term and any regressor in a random effects model?

a. Estimate coefficients with RE and FE; then perform a Hausman test of equality.

b. Estimate the model capturing estimated residuals; then regress residuals on all regressors and perform an F-test.

c. Estimate RE model capturing estimated residuals; then estimate coefficients of correlation with each regressor.

d. Estimate RE and FE models and perform an F test on each model individually. If the difference between the F statistics is significant, conclude endogeneity.

21. If you perform a Hausman test on a random effects model and have a test statistic that exceeds your critical value, what should you conclude?

a. All of the regressors in the RE model are exogenous.

b. None of the common RE and FE coefficients are significantly different.

c. At least one of the coefficients is significantly different from zero.

d. At least one of the regressors in the RE model is endogenous.

22. If you perform a Hausman test on a random effects model and have a test statistic that exceeds your critical value, which of the following is NOT correct?

a. At least one of the regressors in the RE model is endogenous.

b. None of the common coefficient estimates in the RE model will be significantly different in the FE model.

c. FE may be the preferred estimation technique.

d. This model may be better estimated using the Hausman-Taylor estimator.

23. When should the Hausman-Taylor estimator be used?

a. When a RE model has some endogenous regressors

b. When FE is statistically insignificant

c. When you do not have any information as to which regressors are endogenous

d. When you want to estimate RE on a long, narrow data set