Fixed, Random, or Something in between? A Variant of Hausman’s Specification Test for Panel Data Estimators

12 Pages Posted: 11 Feb 2010

See all articles by Manuel Frondel

Manuel Frondel

RWI Leibniz Institute for Economic Research ; Ruhr University Bochum (RUB)

Colin Vance

Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI)

Date Written: January 1, 2010

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.

Keywords: Specifi cation tests, fuel price elasticity

JEL Classification: C12

Suggested Citation

Frondel, Manuel and Vance, Colin, Fixed, Random, or Something in between? A Variant of Hausman’s Specification Test for Panel Data Estimators (January 1, 2010). Ruhr Economic Paper No. 160. Available at SSRN: https://ssrn.com/abstract=1550617 or http://dx.doi.org/10.2139/ssrn.1550617

Manuel Frondel (Contact Author)

RWI Leibniz Institute for Economic Research ( email )

Hohenzollernstr. 1-3
45128 Essen
Germany

Ruhr University Bochum (RUB) ( email )

Universitätsstraße 150
Bochum, NRW 44780
Germany

Colin Vance

Rheinisch-Westfälisches Institut für Wirtschaftsforschung (RWI) ( email )

Hohenzollernstr. 1-3
Essen, 45128
Germany
0049-201-8149-237 (Phone)

HOME PAGE: http://www.rwi-essen.de

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