Time-invariant regressors under fixed effects: simple identification via a proxy variable

0524647 - NHU-C 2021 RIV NL eng J - Journal Article
Bělín, Matěj
Time-invariant regressors under fixed effects: simple identification via a proxy variable.
Economics Letters. Roč. 186, January (2020), č. článku 108799. ISSN 0165-1765. E-ISSN 1873-7374
Institutional support: Progres-Q24
Keywords : omitted variable bias * panel data * random effects
OECD category: Applied Economics, Econometrics
Impact factor: 2.097, year: 2020
Method of publishing: Limited access
https://doi.org/10.1016/j.econlet.2019.108799

Identification of a coefficient associated with a time-invariant regressor (TIR) often relies on the assumption that the TIR is uncorrelated with the unobserved heterogeneity across panel units. We derive an estimator which avoids the random-effects assumption by employing a proxy for the unobserved heterogeneity thus extending the existing results on proxy variables from the cross-sectional literature. This method is easy to implement using standard routines for linear regression. Monte Carlo evidence shows the proposed estimator performs well is small samples.
Permanent Link: http://hdl.handle.net/11104/0308985