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03.5.1. A Concise Derivation of the Wallace and Hussain Fixed Effects Transformation
Published online by Cambridge University Press: 01 October 2003
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A concise derivation of the Wallace and Hussain fixed effects transformation.
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- PROBLEMS AND SOLUTIONS
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- © 2003 Cambridge University Press
Consider the panel regression model with two-way error component disturbances defined by
Wallace and Hussain (1969) derive the fixed effects transformation for this model by “trial error and generalization.” Use the Frisch–Waugh–Lovell theorem described in Davidson and MacKinnon (1993, p. 19) to obtain a concise derivation of this Within transformation.
References
REFERENCES
Wallace, T.D. &
A. Hussain
(1969)
The use of error components models in combining cross-section and
time-series data.
Econometrica
37,
55–72.Google Scholar
Davidson, R. &
J.G. MacKinnon
(1993)
Estimation and Inference in Econometrics.
New York:
Oxford University Press.
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