where αi represents the individual regional effect. The fixed effect model is typically estimated
by the least squares dummy variable (LSDV) method (Greene 2003, p. 287).
The FGLS estimation method takes into account heteroskedasticity, and cross-sectional and
serial correlation. The error terms can be written as
|
' σnΩ11 |
σ12Ω12 |
σ1 N ωi N | |
|
E[εε']=Ω= |
σ 21Ω21 : |
σ22Ω22 |
• σ2 N ω2 N : |
|
σN 1Ω N1 |
σN2ΩN2 |
σNN ω NN _ |
where
|
1 |
Pj |
P2j |
T -1 ∙∙ ρ j | |
|
Pi |
1 |
Pj |
T-2 ∙∙ ρj | |
|
Ωij= |
Pp |
Pi |
1 |
T-3 ρ Pj |
|
_ ρT-1 |
T-2 Pi |
PiT-3 |
1 |
An FGLS panel data model is also called the Parks-Kmenta method (Kmenta 1986). This method
consists of the following steps. Estimate equation (1) by regular OLS. Then use the estimation
residuals to estimate assumed error AR(1) serial correlation coefficient ρ . Use this coefficient to
transform the model to eliminate error serial correlation. Substitute Ω for Ω using estimated ρ
and σ2 , then obtain the FGLS estimator of β as
βGLS = ( X ' ΩX )-1X ' Ω-1 y .
Analysis of Estimation Results
Using the relative gasoline price as the dependent variable, we get estimation results for the
pooled OLS regression, a fixed effect panel data model, and a panel FGLS method; these are
shown in Table 1. The corresponding estimation results for 3:2:1 crack spread are shown in
Table 2.
10
More intriguing information
1. A Bayesian approach to analyze regional elasticities2. Expectation Formation and Endogenous Fluctuations in Aggregate Demand
3. How Low Business Tax Rates Attract Multinational Headquarters: Municipality-Level Evidence from Germany
4. An Efficient Circulant MIMO Equalizer for CDMA Downlink: Algorithm and VLSI Architecture
5. The name is absent
6. DISCUSSION: ASSESSING STRUCTURAL CHANGE IN THE DEMAND FOR FOOD COMMODITIES
7. The name is absent
8. On the origin of the cumulative semantic inhibition effect
9. The name is absent
10. The Provisions on Geographical Indications in the TRIPS Agreement