How do I test/verify if I can analyze my panel like dataset by simply pooling the individual series?
I have a dataset structured as a panel. Now I am wondering if I can simply
pool the individual series and estimate it via OLS or if I have to use another estimation technique.
(Any R hints and references are highly welcomed.)
Best Answer
You can fit a hierarchical bayesian (HB) model without pooling and do an ordinary OLS by pooling the data and compare the models in terms of model fit, hold-out predictions etc to evaluate whether pooling outperforms the HB model. The model very briefly will look like so:
Model
$y_i sim N(X beta_i,sigma^2 I)$
$beta_i sim N(bar{beta},Sigma)$
Priors
$bar{beta} sim N(bar{bar{beta}},Sigma_0)$
$Sigma sim IW(R,d)$
$sigma^2 sim IG(sp,sc)$
While I do not use R, I do know that there are packages that will do the above for you. Someone more knowledgeable about R can perhaps help you out.
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