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Re: st: FIXED EFFECTS VS FIRST-DIFFERENCING


From   Paul Ngobo <Paul.Ngobo@univ-angers.fr>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: FIXED EFFECTS VS FIRST-DIFFERENCING
Date   Wed, 02 Jul 2003 08:54:05 +0200

Thanks a lot Mark


At 18:11 30/06/03 +0100, vous avez écrit:
Paul,

Date sent: Mon, 30 Jun 2003 14:02:56 +0200
To: statalist@hsphsun2.harvard.edu
From: Paul Ngobo <Paul.Ngobo@univ-angers.fr>
Subject: st: FIXED EFFECTS VS FIRST-DIFFERENCING
Send reply to: statalist@hsphsun2.harvard.edu

> Can someone please tell me when to adopt a first differencing estimation
> and when to adopt a fixed effects estimation? I am estimating a model over
> 9 years with multiplicative effects of the independent variables. While the
> IV-FE estimation does not yield many significant coefficients, the IV-FD
> does. So I wonder if there is a technique (like the HAUSMAN TEST) that
> could allow me to select one of these estimation methods?
> Many thanks in advance

First-differences, fixed effects, Arellano-Bond, etc., are all
different ways of estimating the same model. What makes one
estimation method more or less appropriate than another is basically
the disturbance term. Is it autocorrelated? Is it correlated with
any of your regressors?

A good place to start reading about this is the discussion in the
manual for xtabond, Stata's implementation of the Arellano-Bond
estimator.

Hope this helps.

--Mark

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Prof. Mark E. Schaffer
Director
Centre for Economic Reform and Transformation
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS UK
44-131-451-3494 direct
44-131-451-3008 fax
44-131-451-3485 CERT administrator
http://www.som.hw.ac.uk/cert
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