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st: RE: Basic fixed effects estimator question


From   "Salvati, Jean" <[email protected]>
To   <[email protected]>
Subject   st: RE: Basic fixed effects estimator question
Date   Fri, 17 Dec 2004 18:02:10 -0500

> Hi Stata users,
>  
> I have a question about the estimator for fixed effects in 
> the linear model. That is 
>  
> . xtreg, fe
>  
> I have seen in the XT manual ( version 8, p. 207) that this 
> is estimated by running OLS on:
>  
> yit -yi(bar) + y (double bar) = ......
>  

Alejandro,

The manual is not consistent on this point. See the sentence just under
equation (3) on page 193:

"In particular, xtreg, fe provides what is known as the fixed-effects
estimator ... and amounts to using OLS to perform the estimation of (3)"

Where (3) is:

y_bar(i,t) - y_bar(i) = [y_bar(i,t) - y_bar(i)]b + e(i,t) - e_bar(i)

(no double bars).

My guess is that what is stated on p. 193 is what -xtivreg, fe- really
does, but I haven't checked.

Jean Salvati

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