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From |
Edlira Narazani <narazani@econ.unito.it> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
RE: Macoreconometric dynamic panels (was: Re: st: panel autocorrelation) |

Date |
Tue, 19 Oct 2004 12:06:18 +0200 |

Jean Thank you Scrive "Salvati, Jean" <JSalvati@imf.org>: > Just correcting my previous post (Beware of Monday morning certainties :), > and apologizing for involving Kit Baum in my errors: > > > - As pointed by Kit Baum, the "within" or "fixed effect" > > estimator implemented in -xtivreg, fe- is not consistent in the case > > of a DPD model. If there is a lag of the dependent variable on the RHS > > of your equation, you should never, ever use -xtivreg, fe- :) > > Actually, there are DPD cases where the within estimator (-xtivreg,fe-) is > consistent. Martin's original comment ("In the case of large T the > FE-estimator is consistent (cf eg Bond [p. 5, fn 6])") was certainly correct. > This result is also shown by Anderson and Hsiao (1981). > > It's true that a basic OLS estimator will never be consistent with a DPD > model, but the within estimator is not a basic OLS estimator. As noted by > Arellano and Bover (1995) or Alvarez and Arellano (2003), the within > estimator is equivalent to OLS on a model transformed by orthogonal > deviations. To find out whether -xtivreg,fe- is consistent in your case, > check out Anderson-Hsiao (1981) and Alvarez-Arellano (2003). > > Sorry about the confusion. > > Just another point: > > Martin Mathes wrote: > > >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. > > The point that I wanted to make in my previous post is that the Arellano-Bond > estimator deals with the individual effect in exactly the same way as the > within "fixed effect" estimator: by getting rid of it. As noted by Wooldridge > in "Econometric Analysis of Cross Section and Panel Data", the important > distinction is not so much between "random" and "fixed". The important issue > is the correlation between the individual effect and the regressors. Both the > within estimator and the Arellano-Bond estimator can deal with an individual > effect that is random a random variable correlated with the regressors. > > References: > > - Alvarez and Arellano (2003), "The time-series and cross-section asymptotics > of dynamic panel data estimators", Econometrica. > - Anderson and Hsiao (1981), "Estimation of dynamic models with error > components". > - Arellano and Bover (1995), "Another look at the instrumental variable > estimation of error-components models", Journal of Econometrics. > > Jean Salvati > > > > -----Original Message----- > > From: owner-statalist@hsphsun2.harvard.edu > > [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of > > Salvati, Jean > > Sent: Monday, October 18, 2004 11:31 AM > > To: statalist@hsphsun2.harvard.edu > > Subject: RE: Macoreconometric dynamic panels (was: Re: st: > > panel autocorrelation) > > > > Hi Martin, > > > > A few remarks: > > > > - As pointed by Kit Baum, the "within" or "fixed effect" > > estimator implemented in -xtivreg, fe- is not consistent in > > the case of a DPD model. If there is a lag of the dependent > > variable on the RHS of your equation, you should never, ever > > use -xtivreg, fe- :) > > > > - The Anderson-Hsiao estimator is consistent for T->infty, > > N->infty, or both. Unfortunately, the -xtivreg, fd- > > implementation of this estimator cannot be used for inference > > and hypothesis testing. The problem is that the > > Anderson-Hsiao (or Arellano-Bond, for that matter) > > orthogonality conditions involving lags of the dependent > > variable are only valid when the error term in the levels > > equation is not serially correlated. However, when the error > > term in the levels equation is not serially correlated, the > > error term in the first-difference equation exhibits negative > > first-order autocorrelation. Unfortunately, the > > Anderson-Hsiao estimator relies on the first-difference > > equation, and -xtivreg, fd- does not report robust standard > > deviations for the coefficients. > > > > - The Arellano-Bond GMM estimator is a random-effect > > estimator in the sense that the individual effect is treated > > as a random variable. However, like the "within fixed effect" > > estimator implemented in -xtivreg, fe-, the Arellano-Bond > > estimator is perfectly valid when the individual effect is > > correlated with some of the regressors (or even all the > > regressors). Any estimator that relies on first-differencing > > or orthogonal deviations can cope with the correlation > > between the individual effect and the regressors. In > > contrast, the estimators implemented in -xtivreg, re- are not > > valid when the individual effect is correlated with some of > > the regressors. > > > > - As I said in my response to Edlira, additional consistency > > results for the GMM DPD estimators are provided in the recent > > paper by Alvarez and Arellano (2003), "The time-series and > > cross-section asymptotics of dynamic panel data estimators", > > Econometrica, July. Check it out. You might be happily surprised :) > > > > Jean Salvati > > Econometric Support > > (202) 623-7804 > > IS 12-1328 > > > > > > > -----Original Message----- > > > From: owner-statalist@hsphsun2.harvard.edu > > > [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Martin > > > Mathes > > > Sent: Sunday, October 17, 2004 12:57 PM > > > To: statalist@hsphsun2.harvard.edu > > > Subject: Macoreconometric dynamic panels (was: Re: st: panel > > > autocorrelation) > > > > > > Dear Christopher, dear Listers, > > > > > > the topic of our discussion is moving slightly towards a very > > > interesting (and fundamental) question: > > > > > > What estimator to apply in case of a macroeconometric (!) dynamic > > > panel? > > > > > > I haven't mentioned that my panel is a macroeconometric one > > so (1) it > > > tends to T>N and (2) fixed effects can be assumed to be > > more adequate > > > than random effects (in the case of absence of LDVs). > > > The following considerations led me to employ xtreg, fe or/and > > > xtivreg: > > > In the case of large T the FE-estimator is consistent (cf > > eg Bond [p. > > > 5, fn 6]). Employing RE instead of FE can afaik be assumed > > to lead to > > > a bias in a case in which FE should obviously be the prefered > > > estimator. > > > Furthermore, the paper "Estimating Dynamic Panel Data Models: > > > A Practical Guide for Macroeconomists" by Judson/Owen > > > (http://papers.ssrn.com/sol3/Delivery.cfm/Delivery.cfm/9705013.pdf?a > > > bstractid=1904&mirid=1) concludes after running a Monte > > Carlo analysis > > > comparing variants of Arellano-Bond-GMMs and > > > Anderson- Hsiao-ivregs that with small Ns the latter outperform the > > > first. (Their tab 4 indicates that with *very* small N even OLS-FE > > > outperforms AB- GMM, at least as far as I have understood.) > > > > > > It seems to me that - in general - there might be a > > conflict between a > > > panel's quality of beeing a macroeconometric one (-> xtreg fe or > > > something xtivreg-like preferable) and a dynamic one (-> xtabond > > > preferable). Could including group-dummies in a xtabond-estimation > > > provide a solution? I haven't seen this to be done or discussed yet. > > > > > > As I am really no expert on this (at least so far...), I would > > > appreciate your (and the listers') comments on this issue very much. > > > > > > And last but not least: If I kept my initial choice of estimators, > > > would there be any possibility to test for autocorr? > > > > > > Martin > > > > > > > > > > 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): http://econpapers.repec.org I don't see > > > that in the > > > > presence of a LDV that you can successfully employ FE. > > > > > > > > Kit Baum, Boston College Economics baum@bc.edu > > > > http://ideas.repec.org/e/pba1.html > > > > > > > > * > > > > * For searches and help try: > > > > * http://www.stata.com/support/faqs/res/findit.html > > > > * http://www.stata.com/support/statalist/faq > > > > * http://www.ats.ucla.edu/stat/stata/ > > > > > > Martin Mathes > > > Universität Trier > > > FB IV - VWL > > > Europäische Wirtschaftspolitik > > > D-54286 Trier > > > Tel.: ++49-651-201-2747, -2739 > > > Fax: ++49-651-201-3934 > > > e-mail: mathes@uni-trier.de > > > > > > > > > * > > > * For searches and help try: > > > * http://www.stata.com/support/faqs/res/findit.html > > > * http://www.stata.com/support/statalist/faq > > > * http://www.ats.ucla.edu/stat/stata/ > > > > > > > > > > * > > * For searches and help try: > > * http://www.stata.com/support/faqs/res/findit.html > > * http://www.stata.com/support/statalist/faq > > * http://www.ats.ucla.edu/stat/stata/ > > > > > > * > * For searches and help try: > * http://www.stata.com/support/faqs/res/findit.html > * http://www.stata.com/support/statalist/faq > * http://www.ats.ucla.edu/stat/stata/ > ---------------------------------------------------------------- This message was sent using IMP - Facolta' di Economia - Torino. * * For searches and help try: * http://www.stata.com/support/faqs/res/findit.html * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**st: Log pseudo likelihood***From:*Shahina Amin <Shahina.Amin@uni.edu>

**References**:**RE: Macoreconometric dynamic panels (was: Re: st: panel autocorrelation)***From:*"Salvati, Jean" <JSalvati@imf.org>

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