Panel data

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In statistics and econometrics, the term panel data (or longitudinal data[1][2]) refers to multi-dimensional data frequently involving measurements over time. Panel data contain observations of multiple phenomena obtained over multiple time periods for the same firms or individuals.

Time series and cross-sectional data can be thought of as special cases of panel data that are in one dimension only (one panel member or individual for the former, one time point for the latter).

A study that uses panel data is called a longitudinal study or panel study.

Example[edit]

balanced panel: unbalanced panel:

In the example above, two data sets with a panel structure are shown. Individual characteristics (income, age, sex) are collected for different persons and different years. In the left data set two persons (1, 2) are observed over three years (2001, 2002, 2003). Because each person is observed every year, the left-hand data set is called a balanced panel, whereas the data set on the right hand is called an unbalanced panel, since person 1 is not observed in year 2003 and person 3 is not observed in 2003 or 2001. This specific structure these data sets are in is called long format where one row holds one observation per time. Another way to structure panel data would be the wide format where one row represents one observational unit for all points in time (for the example, the wide format would have only two (left example) or three (right example) rows of data with additional columns for each time-varying variable (income, age). Representing panel data in long format is much more common than using the wide format.

Analysis of panel data[edit]

A panel has the form


where is the individual dimension and is the time dimension. A general panel data regression model is written as Different assumptions can be made on the precise structure of this general model. Two important models are the fixed effects model and the random effects model.

Consider a generic panel data model:

are individual-specific, time-invariant effects (for example in a panel of countries this could include geography, climate etc.) which are fixed over time., whereas is a time-varying random component.

If is unobserved, and correlated with at least one of the independent variables, then it will cause omitted variable bias in a standard OLS regression. However, panel data methods, such as the fixed effects estimator or alternatively, the First-difference estimator can be used to control for it.

If is not correlated with any of the independent variables, ordinary least squares linear regression methods can be used to yield unbiased and consistent estimates of the regression parameters. However, because is fixed over time, it will induce serial correlaiton in the error term of the regression. This means that more efficient estimation techniques are available. Random effects is one such method: it is a special case of feasible [generalised least squares] which controls for the structure of the serial correlation induced by .

Dynamic Panel Data[edit]

Dynamic panel data describe the case where a lag of the dependent variable is used as regressor:

The presence of the lagged dependent variable violates strict endogeneity. The fixed effect estimator and the first differences estimator both rely on the assumption of strict exogeneity. Hence, if is believed to be correlated with one of the dependent variables, an alternative estimation technique must be used. Instrumental variables or GMM techniques are commonly used in this situation, such as the Arellano–Bond estimator.

Data sets which have a panel design[edit]

Data sets which have a multi-dimensional panel design[edit]

See also[edit]

Notes[edit]

  1. ^ Diggle, Peter J.; Heagerty, Patrick; Liang, Kung-Yee; Zeger, Scott L. (2002). Analysis of Longitudinal Data (2nd ed.). Oxford University Press. p. 2. ISBN 0-19-852484-6. 
  2. ^ Fitzmaurice, Garrett M.; Laird, Nan M.; Ware, James H. (2004). Applied Longitudinal Analysis. Hoboken: John Wiley & Sons. p. 2. ISBN 0-471-21487-6. 

References[edit]

  • Baltagi, Badi H. (2008). Econometric Analysis of Panel Data (Fourth ed.). Chichester: John Wiley & Sons. ISBN 978-0-470-51886-1. 
  • Davies, A.; Lahiri, K. (1995). "A New Framework for Testing Rationality and Measuring Aggregate Shocks Using Panel Data". Journal of Econometrics. 68 (1): 205–227. doi:10.1016/0304-4076(94)01649-K. 
  • Davies, A.; Lahiri, K. (2000). "Re-examining the Rational Expectations Hypothesis Using Panel Data on Multi-Period Forecasts". Analysis of Panels and Limited Dependent Variable Models. Cambridge: Cambridge University Press. pp. 226–254. ISBN 0-521-63169-6. 
  • Frees, E. (2004). Longitudinal and Panel Data: Analysis and Applications in the Social Sciences. New York: Cambridge University Press. ISBN 0-521-82828-7. 
  • Hsiao, Cheng (2003). Analysis of Panel Data (Second ed.). New York: Cambridge University Press. ISBN 0-521-52271-4. 

External links[edit]