Sumera Nawaz ECONOMICS   -   Econometrics

When is the use of a fixed-effects model preferable to a random-effects model in panel data analysis?

The fixed-effects model is preferable when the individual effects are correlated with the explanatory variables. This model accounts for unobserved heterogeneity by allowing each cross-sectional unit to have its own intercept, thus controlling for time-invariant characteristics.
When is the use of a fixed-effects model preferable to a random-effects model in panel data analysis? What is the primary purpose of using Instrumental Variables (IV) in econometrics? Which test is commonly used to detect autocorrelation in the residuals of a regression model? How to address heteroskedasticity in a regression model? Why is multicollinearity a problem in multiple regression analysis?