Consider the following generic fixed effects model, along with a two-period (t = 1, 2), randomly sampled panel data set with dependent variable y andindependent variable x:Yit = Bo + 5o d24 + B1rit + ai +UitwhereYit = value of y for individual i at timetd2; = binary variable equal to 1 in the second time period (t = 2), and o otherwise (t = 1)Cit = value of a for individual i at time ta; = unobserved (time-invariant) effectUj = idiosyncratic errorTaking the first difference of the model (that is, subtracting the regression equation for t=1 from the regression equation for t=2) yields the followingfirst-differenced equation:Note: Let A denote the change from t=1 to t = 2.Ay; = Yi2 – Yi1=SoAu;You now plan to use OLS to estimate your first-differenced equation, in order to obtain the first-differenced estimator. Suppose that ait is a binaryvariable equal to 1 if the individual was born male, and o otherwise.True or False: The first-differenced estimator cannot be estimated in this case.O TrueO False

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Answered: Consider the following generic fixed…

Linear Algebra: A Modern Introduction

4th Edition

ISBN:9781285463247

Author:David Poole

Publisher:David Poole

Chapter7: Distance And Approximation

Section7.3: Least Squares Approximation

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