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From |
"David M. Drukker" <ddrukker@stata.com> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
Re: st: Re: Rsquared within using id & time dummies. xtreg returnscollineality error |

Date |
Sat, 26 Nov 2005 10:28:46 -0600 (CST) |

"Jorge Morgenstern" <jmorgenstern@utdt.edu> wrote that he was having trouble using -areg- and -xtreg, fe- to estimate a model with id indicators, time indicators and their interactions. If I understand correctly, Jorge tried to fit a model with 300 observations and and about 30+10+300=330 covariates. If my understanding of what he did is correct, the fact he tried to estimate a model with more parameters than observations would explain any odd results obtained. If Jorge's data does not contain any gaps and he is willing to assume that only the intercepts and the coefficients on a time trend vary over the individuals, the following model may be of interest to him. y_it = x_it b + a_i + g_i t + e_it (1) where x_it is a vector of exogenous covariates b is a vector of coefficients a_i are the N intercepts that differ for each of the N individuals g_i is the coefficient on the time trend for individual i t is a variable contains calender time e_it is the idiosyncratic error While this model is more parsimonious than the one Jorge suggested, it still contains too many parameters to estimate directly. If we are going to use large N sample theory, we need to remove the a_i and the g_i from the estimating equation. As long as there are no gaps in the data, first differencing equation equation (1) yields D.y_it = D.x_it b + g_i + D.e_it (2) Equation (2) is a simple fixed-effect model whose parameters can be estimated by -xtreg, fe-. Jorge should cluster() on the id variable to account for the serial correlation caused by first-differencing the variables. -David ddrukker@stata.com * * 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/

**References**:**st: Re: Rsquared within using id & time dummies. xtreg returns collineality error***From:*"Jorge Morgenstern" <jmorgenstern@utdt.edu>

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