Warnings & Interpretation Hausman Test

[Emily]

Hi,

I want to use the Hausman Test in order to check whether my panel data allows to use random effects models instead of fixed effects models. I know how to perform the test, I just have difficulties with the interpretation of the output and the warnings that I get. I already searched the Eviews User Guide and this forum, but I am still confused and I hope that you can help me. My Hausman output looks like this:


Test Summary Chi-Sq. Statistic Chi-Sq. d.f. Prob.

Cross-section random 0.000000 16 1.0000

* Cross-section test variance is invalid. Hausman statistic set to zero.
** WARNING: robust standard errors may not be consistent with
assumptions of Hausman test variance calculation.

My questions are:
1) Does the warning mean the test is invalid?
2) If "yes" to question 1), what can I do?
3) May I use random effects panel models?

One maybe important information: I use White (diagonal) robust standard errors. I use Eviews version 6.

Thank you very much and enjoy your easter holidays!

[EViews Gareth]

Essentially what this is saying is that the estimate of the cross-section effects indicates that there are, in fact, no cross-section effects (i.e. they have no variance). This means that testing for the difference between random effects and fixed effects may not be a valid thing to do (if your best guess is that there are no effects, how can you test what sort of effects they are?).

There isn't really a "fix" for this, nor should you really think of it as a problem.

[adnma]

Test Summary Chi-Sq. Statistic Chi-Sq. d.f. Prob.

Cross-section random 0.101977 1 0.7495


WARNING: estimated cross-section random effects variance is zero**

Hi!

I'm getting this message.

What does it mean for my model????

[EViews Gareth]

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