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Re: Re: st: xtgee robust standard errors

From   "David M. Drukker, StataCorp" <>
Subject   Re: Re: st: xtgee robust standard errors
Date   Fri, 16 Aug 2002 11:35:32 -0500

In the continuing thread about robust standard errors after -xtgee ,
fam(gauss) link(id)-, Axel <> asked:

> david, are you saying that xtgee using the robust option is similar
> to a hausman taylor iv estimation where one can use random effects
> despite x_it correlated with u_it in order to get estimates of time
> invariant variables?

No, when x_it and u_i are correlated in the model

 	y_it = B x_it + u_i + e_it
		u_i ~ i.i.d over the panels 
		e_it ~ i.i.d over all the observations
		x_it uncorrelated with e_it 
		e_it uncorrelated with u_i 

-xtgee , fam(gauss) link(id)- will NOT provide consistent estimates of the
marginal effect of x_it on y_it.  In contrast, the Hausman-Taylor estimator
(Hausman and Taylor 1981) can provide consistent estimates of the parameter
B when x_it is correlated with u_i.  The Hausman-Taylor esimator overcomes
the correlation between the x_it and u_i via the method of instrumental

Still, there does exist a population parameter that corresponds to B for the
above model with x_it correlated with u_i, although I do not know how to
interpret it.  -xtgee , fam(gauss) link(id)- will estimate this population
parameter and specifying -robust- will provide consistent estimates of the
standard error.

If you are insterested interested in obtaining consistent estimates of B
that are interpretable as the marginal effect of x_it when x_it and u_i are
correlated, you should look into the instrumental variables estimators.
Baltagi (2001) and Wooldridge (2002) both give very good introductions to
these methods.


Baltagi, Badi. 2001.  "Econometric Analysis of Panel Data."  New York: John
Wiley and Sons.

Hausman, Jerry and Taylor, William. 1981. "Panel Data and Unobservable
Individual Effects", Econometrica, Vol 49 No 6: pp 1377-1398.

Wooldridge, Jeffrey. 2002. "Econometric Analysis of Cross Section and Panel
Data."  Cambridge, Massachusetts: The MIT Press.

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