Researchers at New York University Publish New Data on Political Science
Politics & Government Week
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"Plumper and Troeger (2007) propose a three-step procedure for the estimation of a fixed effects (FE) model that, it is claimed, ''provides the most reliable estimates under a wide variety of specifications common to real world data.'' Their fixed effects vector decomposition (FEVD) estimator is startlingly simple, involving three simple steps, each requiring nothing more than ordinary least squares (OLS). Large gains in efficiency are claimed for cases of time-invariant and slowly time-varying regressors," researchers in New York City, United States report.
"A subsequent literature has compared the estimator to other estimators of FE models, including the estimator of Hausman and Taylor (1981) also (apparently) with impressive gains in efficiency. The article also claims to provide an efficient estimator for parameters on time-invariant variables (TIVs) in the FE model. None of the claims are correct. The FEVD estimator simply reproduces (identically) the linear FE (dummy variable) estimator then substitutes an inappropriate covariance matrix for the correct one. The consistency result follows from the fact that OLS in the FE model is consistent. The ''efficiency'' gains are illusory. The claim that the estimator provides an estimator for the coefficients on TIVs in an FE model is also incorrect. That part of the parameter vector remains unidentified," wrote W. Greene and colleagues, New York University.
The researchers concluded: "The ''estimator'' relies upon a strong assumption that turns the FE model into a type of random effects model."
Greene and colleagues published their study in Political Analysis (Fixed Effects Vector Decomposition: A Magical Solution to the Problem of Time-Invariant Variables in Fixed Effects Models? Political Analysis, 2011;19(2):135-146).
For additional information, contact W. Greene, New York University, Stern School Business, Dept. of Economics, 550 1St. Avenue, New York City, NY 10012, United States.
Publisher contact information for the journal Political Analysis is: Oxford University Press, Great Clarendon St., Oxford OX2 6DP, England.
This article was prepared by Politics & Government Week editors from staff and other reports. Copyright 2011, Politics & Government Week via VerticalNews.com.