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Re: st: egen and computing fixed effects


From   Mark Schaffer <M.E.Schaffer@hw.ac.uk>
To   statalist@hsphsun2.harvard.edu, "Tim R. Sass" <tsass@coss.fsu.edu>
Subject   Re: st: egen and computing fixed effects
Date   Tue, 22 Jun 2004 20:49:46 +0100 (BST)

Tim,

Quoting "Tim R. Sass" <tsass@coss.fsu.edu>:

> Statalisters -
> 
> I am trying to "manually" compute a fixed-effects estimator by
> taking the 
> differences from means of all variables and then running reg on the
> 
> demeaned data.  You may ask why in the world I would want to do
> that, but 
> that's for another post.
> 
> I have a panel of student-level data over three years.  I demean the
> data 
> as follows:
> 
> bysort student:egen nrtrgain_m = mean(nrtrgain);
> bysort student:egen charter_m = mean(charter);
> bysort student:egen nschools_m = mean(nschools);
> bysort student:egen chgschl_m = mean(chgschl);
> 
> gen d2_nrtrgain = nrtrgain - nrtrgain_m;
> gen d2_charter = charter - charter_m;
> gen d2_nschools = nschools - nschools_m;
> gen d2_chgschl = chgschl - chgschl_m;
> 
> I then run the following models:
> 
> areg  nrtrgain charter nschools chgschl,
>                   absorb(student) ;
> 
> reg   d2_nrtrgain d2_charter d2_nschools d2_chgschl ;
> 
> xtdata  nrtrgain charter nschools chgschl, fe clear;
> reg  nrtrgain charter nschools chgschl;
> 
> 
> The first and third models yield the same estimated coefficients
> (except 
> for the constant, of course), but the coefficients for the second
> model 
> (using reg on the demeaned variables) yields different results. 
> However, 
> when I eliminate all observations with missing values for any of the
> 
> variables in the model, all three models yield identical estimated
> slope 
> coefficients.
> 
> I'm guessing the problem has something to do with how egen computes
> the 
> mean for each student when there are missing observations.  I have
> read 
> through the manual and searched the archives, but still can't figure
> out 
> what is going on.  Any help would be greatly appreciated.

It's probably the following.  The means vary with the sample.  If you 
limit the sample to only observations for which you have no missings for 
any variable, you get one set of means.  If you calculate the means 
variable-by-variable, you get another set of means that will be based on 
larger samples.

For example, the first set of means for X and Y will be based only on obs 
for which X and Y are both available; the second set will be based on obs 
for which either X or Y are available.

xtreg and areg implicitly use the first set of means, whereas your manual 
fixed effects estimator uses the second set of means.

Hope this helps.

--Mark

> 
> Tim
> 
> 
> Tim R. Sass
> Professor                               Voice:   (850)644-7087
> Department of Economics         Fax:      (850)644-4535
> Florida State University                E-mail:  
> tsass@coss.fsu.edu
> Tallahassee, FL  32306-2180     Internet:
> http://garnet.acns.fsu.edu/~tsass
> 
> 
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> 



Prof. Mark Schaffer
Director, CERT
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS
tel +44-131-451-3494 / fax +44-131-451-3008
email: m.e.schaffer@hw.ac.uk
web: http://www.sml.hw.ac.uk/ecomes
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