Consider the panel data regression model with unobserved heterogeneity, yit = β1 + β2xit + vit = β1 + β2xit + ui + eit. Given that assumptions RE1–RE5 hold, answer each of the following questions.
a. For the purpose of estimating the regression parameters precisely by OLS, the variance of the idiosyncratic error is more important than the variance of the unobserved heterogeneity error. True or False? Explain your choice.
b. For the purpose of estimating the regression parameters precisely by GLS, the variance of the idiosyncratic error is more important than the variance of the unobserved heterogeneity error. True or False? Explain your choice.
c. For the purpose of estimating the regression parameters precisely by fixed effects, the variance of the idiosyncratic error is more important than the variance of the unobserved heterogeneity error. True or False? Explain your choice.
