The fundamental determinants of financial integration in the European Union



15

Q ( i - i Euro )f = Q Xi β + Q ei i = 1,..,N

(13)


Since transforming a constant into a deviation of its individual mean gives zero, the term ζie drops out.
Applying Ordinary Least Squares (OLS) to (13) gives the following within-group estimator (Hsiao, 1986,
p. 31):32

β WG


N               1 - 1 Γ N

∑X'iQXi ∑ X1QU

i = 1                                  i = 1


j∙ Euro


(14)


Now we can estimate ζi by:

^i,.wa-O->'s'",-×'JwG


(15)


with

iare). = ⅛ Σ (i - iare)i.,
1 t = 1

and


The variance-covariance matrix of the within-group estimator is


VÂR (Pifg) = ô


N          1-1

∑x,iQxi

i = 1


(16)


with


1         N

0= = NT λ,.H Σ I <i-i'a,",)∣-W-χ3≡ ]' [                    ]

IVx {1N+C) I = J


and
^ 2

ʌ ʌ         — ʌ .     — σ e

≡( c.w) (Xi VAX Pwg) Xi +          (17)


The parameter k denotes the number of regressors. Basically, the fixed-effects model implies that all countries
have the same coefficients in front of the exogenous variables but that the intercepts are different among
the 11 EU countries. We are referring to the generalized country-specific effects (
ζi) because we are only
able to estimate these in a composite form. This is no problem because our main interest is not in the exact
value of these effects but their ranking. Furthermore, under proper conditions for the error term we can


32


The estimator is called this way because only the variation within each group (country) is used.




More intriguing information

1. Inflation Targeting and Nonlinear Policy Rules: The Case of Asymmetric Preferences (new title: The Fed's monetary policy rule and U.S. inflation: The case of asymmetric preferences)
2. Delayed Manifestation of T ransurethral Syndrome as a Complication of T ransurethral Prostatic Resection
3. Firm Creation, Firm Evolution and Clusters in Chile’s Dynamic Wine Sector: Evidence from the Colchagua and Casablanca Regions
4. Wounds and reinscriptions: schools, sexualities and performative subjects
5. Dynamiques des Entreprises Agroalimentaires (EAA) du Languedoc-Roussillon : évolutions 1998-2003. Programme de recherche PSDR 2001-2006 financé par l'Inra et la Région Languedoc-Roussillon
6. An Economic Analysis of Fresh Fruit and Vegetable Consumption: Implications for Overweight and Obesity among Higher- and Lower-Income Consumers
7. The name is absent
8. Elicited bid functions in (a)symmetric first-price auctions
9. The duration of fixed exchange rate regimes
10. A simple enquiry on heterogeneous lending rates and lending behaviour