Question

Q4 (A)

What are the special features of (a) cross-section data, (b) time series data, and (c) panel data?

Q4 (B)

What is meant by a fixed effects model (FEM)? Since panel data have both time and space dimensions, how does FEM allow for both dimensions?

Answer 1

Answer 4 a : There are various special features of different data such as :

1. Cross Sectional Data : Cross sectional data has special features such as data are able to collected different subjects such as individual, firm, country or region at the same point of time. Example : If we want to calculate height of the population we can meaured weight and obesity at the same time period. Consumpation expenditure in different goods at same time period.
2. Time Series Data : In this same feature of the population has been judged with different point of time. Example : It deals with the level of consumpation change over and after few days.
3. Panel Data : It has been used to examine change in different variable at different time period duration. Here different variable are studied at different time period level. Different individual have different income, health, consumpation level etc affect the panel in different manner. It is also known as Longitudinal Data.

Answer 4 b : For the estimation of the panel data. There is one of the most important techinque that is known as FEM ( Fixed effect Model) . In FEM , it is the intercept of the model in regression taken different individuals, they can used dummy variables into an account. FEM is suitable where the individual specific intercept may be correlated with one or more regressors into an account.

Since panel Data has taken both time and space into an account. This shows that FEM has taken dummy variable into an account which resulted in least square dummy variable . Least square dummy variable taken both time as well as space into an account and provide best result when N ( population size ) is not enough large.