Econometrics - Panel Data

4 important questions on Econometrics - Panel Data

What can we do with panel data?

  1. Control for factors that vary across entities, but not over time;
  2. Control for factors that are unobserved/unmeasured

What is first-differencing panel data method?

Get rid of ai by calculating deltayi = δ0 + b1dxi + dui

What is the main goal of the first-differencing panel data method and why does it sometimes not work?

It can only estimate the effects of time-varying variables.  The goal is to remove the effect of time-invariant effects.
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What is the fixed-effects transformation?

Take the average over time for each i and calculate the difference between yit - ybar

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