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RE: Re: st: demened regression and FE are not the same


From   "philippe van kerm" <[email protected]>
To   <[email protected]>
Subject   RE: Re: st: demened regression and FE are not the same
Date   Sat, 11 Feb 2006 15:09:14 +0100

There is a clear FAQ about this:
http://www.stata.com/support/faqs/stat/xtreg2.html 

Philippe

>-----Original Message-----
>From: [email protected] 
>[mailto:[email protected]] 
>Sent: Friday, February 10, 2006 8:33 AM
>To: [email protected]
>Subject: statalist-digest V4 #2244
>
>statalist-digest      Friday, February 10 2006      Volume 04 
>: Number 2244
>

>Date: Thu, 9 Feb 2006 14:44:37 -0500
>From: Austin Nichols <[email protected]>
>Subject: Re: st: demened regression and FE are not the same
>
>Only the constant term and standard errors should be different using
>the "manual fixed effects" approach of subtracting the mean (over all
>obs within id) of each explanatory variable.  The coef on the variable
>of interest will be the same.  What were you expecting to find?  (Note
>that if you demean your Y var too, the constant term should be very
>very close to zero.)
>
>. webuse grunfeld, clear
>. areg invest kstock, a(company)
>- 
>---------------------------------------------------------------
>---------------
>      invest |      Coef.   Std. Err.      t    P>|t|     [95% 
>Conf. Interval]
>- 
>-------------+-------------------------------------------------
>---------------
>      kstock |   .3707496   .0193676    19.14   0.000     
>.3325452    .4089541
>       _cons |   43.62499   6.984315     6.25   0.000     
>29.84777    57.40222
>- 
>-------------+-------------------------------------------------
>---------------
>. egen k_m=mean(ks), by(company)
>. gen k_dm=ks-k_m
>. reg invest k_dm2
>- 
>---------------------------------------------------------------
>---------------
>      invest |      Coef.   Std. Err.      t    P>|t|     [95% 
>Conf. Interval]
>- 
>-------------+-------------------------------------------------
>---------------
>       k_dm2 |   .3707496   .0607801     6.10   0.000     
>.2508901    .4906091
>       _cons |   145.9583   14.10573    10.35   0.000     
>118.1415     173.775
>- 
>---------------------------------------------------------------
>---------------
>
>
>
>On 2/9/06, [email protected] <[email protected]> wrote:
>> Does anyone know why the demeaned regression does not give 
>the same results as the fixed-effects regression?
>>
>> when I run
>> xtreg Y X , fe
>> areg Y X , a(id)
>>
>> I get the same answer. However, when I run
>> xi: reg Y i.id
>> predict Y1 , resid
>> xi: reg X i.id
>> predict X1 , resid
>> reg Y1 X1
>>
>> I get a different answer. I have also explicity demeaned the 
>variables using
>> foreach var of varlist X Y {
>>        egen mean_`var'_id = mean(`var'), by(id)
>>        gen demean_`var' = mean_`var'_id - `var'
>> }
>> reg   demean_Y demean_X
>>
>> This gives the same asnwer as the residual regression, but 
>NOT the same as the
>> fixed effects or entity dummy regression.
>>
>> Does anyone have any idea why this is the case?
>>
>> Mathematically these 4 approaches are supposed to be identical.
>

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