Timeline for Fixed Effects, Random Effects, Pooled OLS: Hausman and Breusch-Pagan Lagrange multiplier (LM) tests
Current License: CC BY-SA 4.0
6 events
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| May 16, 2021 at 21:48 | comment | added | Ariel | Okay, so I think if you are saying the BP does not reject the null so that the variance of individual effects is 0, you may be ok using pooled. I think that there is no issue using BP first going back to your original question. The Hausman test which specification between RE and FE to use. | |
| May 16, 2021 at 20:14 | comment | added | Anna | thanks! I found a similar question to mine, I have exactly this situation as explained here (link below). From the answer in this post, it is clear that whenever the null of the BP test is not rejected, that means that constant terms are not individual specific and consequently no heteroskedasticity. So, given this, why would one want to use the Fixed Effects model which states that intercepts are individual-specific? Link to a similar question: stats.stackexchange.com/questions/213540/… | |
| May 16, 2021 at 18:47 | comment | added | Ariel | Hey Anna, I think in that case you should go with the Fixed-Effects model since the BP test is really just testing whether or not there is heteroskedasticity. That said, you may need to use this test again in the FE model to ensure you are using the correct standard error specification. This answer might be relevant: stats.stackexchange.com/questions/97023/… | |
| May 16, 2021 at 18:42 | comment | added | Anna | thanks for your reply. When I run the Breusch-Pagan Lagrange multiplier (LM), it says pooled OLS is preferred. Yet, according to Hausman Test, the Fixed Effect model is preferred. Which model I then should use and why? | |
| May 16, 2021 at 18:40 | review | First posts | |||
| May 16, 2021 at 19:48 | |||||
| May 16, 2021 at 18:36 | history | answered | Ariel | CC BY-SA 4.0 |