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RE: st: Panel FE vs. pooled OLS with demeaned variables

From   "Alice(Libo) Sun" <>
To   <>
Subject   RE: st: Panel FE vs. pooled OLS with demeaned variables
Date   Tue, 20 Sep 2005 10:41:22 -0500

Thank you so much!

I was wondering how I am going to program with the degree of freedom
adjustment as Mark just pointed out too.

Very much appreciate your help!


-----Original Message-----
[]On Behalf Of May Boggess
Sent: Tuesday, September 20, 2005 10:24 AM
Subject: Re: st: Panel FE vs. pooled OLS with demeaned variables

On Tuesday morning, Alice Sun wrote:
> I need to run a two-step regression similar to the fixed effect model.
> (Xtreg, fe).
> I first replicate the fixed effect results by running pooled OLS with
> demeaned variables (demean by groups). Yet, I got same coefficients, but
> relative larger t statistics.

There is a degrees-of-freedom adjustment to be made. Here is an example
that shows how that is done. Here I am primarily interested in the
coefficient, and the standard error of that coefficient, of the
independent variable "length":

  sysuse auto
  replace length=length/10
  tab head
  local df = r(r) - 1
  sort  head
  by head: egen mean  = mean(mpg)
  by head: gen newmpg = mpg-mean
  drop mean
  by head: egen mean  = mean(len)
  by head: gen newlen = len-mean
  drop mean

  regress newmpg newlen
  mat b=e(b)
  scalar vadj = e(df_r)/(e(N)-1-(e(df_m) + `df'))
  matrix V = vadj*e(V)

  cap program drop change
  program change, eclass
  eret post b V
  eret display
  xtreg mpg len, i(head) fe

You should find that the last two sets of results show the same
coefficient and standard error for "length".


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