Which of the following is a difference between a fixed effects estimator and a first-difference estimator?
A. The fixed effects estimators are always larger than the first difference estimators in a two-period panel data analysis.
B. The fixed effects estimator is more efficient than the first-difference estimator when the idiosyncratic errors are serially uncorrelated.
C. The first difference estimator is more sensitive to nonnormality and heteroskedasticity.
D. The bias in the first difference estimator depends on the time period (T) of analysis while the bias in the fixed effect does not depend on T.
Answer: B
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What is the relationship between the natural unemployment rate, the unemployment rate, potential GDP, and actual GDP?
What will be an ideal response?