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st: panel autocorrelation

From   Kit Baum <>
Subject   st: panel autocorrelation
Date   Sat, 16 Oct 2004 16:23:07 -0400

Martin said

thanks a lot for your answer.
However, I'd like to run a fixed effects-estimation and xtabond is,
at least as far as I have understood, a random effects-estimator.
Any idea how to proceed in this case?

Drop the notion of the fixed effects estimator. It does not make sense in a dynamic context (for good reason, as any paper underlying the Arellano-Bond approach indicates) as an OLS technique is unable to cope with the correlation between the demeaned LDV and the demeaned error process. (You would run into the same trouble if you did the XTREG,FE 'by hand' with firm dummies, or with 'areg'). An excellent guide to the DPD estimators is provided in Steve Bond's ``Dynamic panel data models: a guide to microdata methods and practice", available from EconPapers (CeMMAP working paper 09/02 at Institute for Fiscal Studies):
I don't see that in the presence of a LDV that you can successfully employ FE.

Kit Baum, Boston College Economics

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