Error Component Model with Panel Data
Panel data can take care of inter individual differences and intra-individual dynamics by mixing cross section and time series components. It has multiple entities, each of which has repeated measurements at different time periods. Panel data econometric models examine cross section specific effects, time effects, or both to capture unobserved heterogeneity. These effects are either fixed or random. In a fixed effect model intercepts vary across group or time period non-stochastically, whereas a random effect model explores differences in error variance components across individual or time period.