3. Unobserved eects and panel analysis Write down the linear unobserved eects model and give an example of the empirical problem in which an unobserved eect probably exists. Explain how a panel data structure can be used to improve the quality of estimates. What is the dierence between the random eects and xed eects methods? What should be the basis of choice between them? How do we test for the need of use of the xed eect estimator. Explain the advantages and disadvantages of the xed, random and rst dierence estimators. Why dynamic panel data models cannot be estimated with either random or xed eect estimator? Give an example of the method which can be used for consistent estimation of a dynamic panel data model. When and why do we use the Hausmann and Taylor estimator? What are the advantages of this estimator.