True/False: Suppose you are analyzing panel data and are unsure whether the fixed effect and independent variables are correlated. Then, it is best to use fixed effect models.

Answer:
True. Random effects models impose the strong assumption that the fixed effect and independent variables are uncorrelated. These coefficients may be biased if the assumptions does not hold. Therefore, it is best to play safe and use fixed effects model. You potentially sacrifice some efficiency if your assumption is not correct, but your estimates are unbiased if all other assumptions are met.