Ruhr Economic Papers

Ruhr Economic Papers #160

Fixed, Random, or Something in Between? - A Variant of HAUSMAN's Specification Test for Panel Data Estimators

by Manuel Frondel and Colin Vance

RWI, 01/2010, 10 S./p., 8 Euro, ISBN 978-3-86788-179-1

download

Abstract

This paper proposes a variant of the classical HAUSMAN specification test commonly employed to decide whether the estimation of a random-effects model is a viable alternative to estimating fixed effects. Whereas the classical test probes the equality of fixed- and random effects, the proposed variant focuses on the equality of between-groups and fixed-effects coefficients. While both test procedures lead to the same conclusions, the panel model specification underlying our testing strategy facilitates the simultaneous estimation of the fixed- and between-groups effects. As a consequence, we are able to examine both the equality of the whole range of coefficients as well as that of individual variables. The usefulness of the test is illustrated using a panel of household travel data for Germany.

JEL-Classification: C12

Keywords: Specification tests; fuel price elasticity

Published as:

Frondel, M. and C. Vance (2010), Fixed, Random, or Something in Between? A Variant of HAUSMAN's Specification Test for Panel Data Estimators. Economics Letters 107 : 327-329.

Up