Answer to Question #303145 in Macroeconomics for Abichu

Question

24. Explain the Hausman test as it is applied in discriminating between fixed effects and random effects methods.

Answer 1

In panel data analysis (the analysis of data over time), the Hausman test helps one in choosing between fixed effects model or a random effects model. The null hypothesis is that the preferred model is random effects; The alternate hypothesis is that the model is fixed effects