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st: two-way error component model


From   "Svetlana Mira " <svetlanam@Cardiff.ac.uk>
To   statalist@hsphsun2.harvard.edu
Subject   st: two-way error component model
Date   Thu, 24 Feb 2005 16:31:07 GMT0BST

Dear All,

I have a problem understanding how Stata computes the results for a 
two-way error component model (xi: reg y i.idfirm i.idtime x1) and 
hopefully somebody will be able to help me with this. In the case of 
a fixed effects model, we can obtain the results in Stata either by 
using xtreg, areg or simply based on the demeaned values using 
regress option. Can we apply the last option (demeaning) for the two-
way error component model? (i.e., can we run a two-way error 
component model based on the mean differences)? If so, what means 
shall we extract?
 
For instance, if we run xi: reg y i.idfirm i.idtime x1 the obtained 
results are not equal to the results based on 

regress y x2, where x2=x1-x(meanidfirm)-x(meanidtime)      

Or as suggested by Green (1997)

regress y x3, where x3=x1-x(meanidfirm)-x(meanidtime) + x(firm-year 
specific mean).

Does Stata use a specific procedure to run a two-way error component 
model different from the ones mentioned above? Any suggestions or 
comments are more than appreciated.

Many thanks for your help, 
Svetlana

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