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st: Fixed effects and stable variables: xtivreg or ivreg2?
Hello Statalist members,
I tried this message 2x before and it didn't go through - hopefully 3rd
times a charm! I have 2 related questions. First question:
When using fixed effects, variables that are invariant over time will get
washed out by the firm/subject level fixed effect. I've read that variables
that are highly stable (i.e., show very little variation over time) may also
largely get washed out by the fixed effect. However, I cannot find any
references that provide guidelines for determining when a [key theoretical]
variable is "too stable" to be accurately estimated via fixed effects. For
example, if I have 10 years of annual data and a key variable is correlated
0.91 with it's lag, is that "too stable"?
Second, if a Hausman test suggests that random effects are inappropriate,
what might be a reasonable alternative to xtivreg with the fe option (note:
the stable variable is not the endogenous one)? Would ivreg2 with gmm and
cluster options be reasonable in this case ?
Thanks for any suggestions you can offer,
University of Notre Dame
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