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st: re: test of coefficients across OLS and fixed effect regressions


From   Kit Baum <baum@bc.edu>
To   statalist@hsphsun2.harvard.edu
Subject   st: re: test of coefficients across OLS and fixed effect regressions
Date   Fri, 28 Sep 2007 15:43:45 -0400

Jackie wants to compare the coefficients on X1 in these two models:

reg Y X1 X2
xtreg Y X1 X2, fe i(id)

If the F-statistic at the foot of the -xtreg, fe- output rejects its null (that there are no fixed effects) then the OLS form of the equation is misspecified, and its coefficient should not be compared with anything. On the other hand if the F-statistic fails to reject that null H, you're wasting lots of d.f. by fitting a fixed effects model, and for more efficient estimates you should constrain the FE to zero (i.e. use OLS). The FE coefficient is unbiased and consistent but inefficient. So it makes little sense to think of comparing these coefficients, particularly in the former case where unobserved heterogeneity renders OLS inconsistent.

Kit

Kit Baum, Boston College Economics and DIW Berlin
http://ideas.repec.org/e/pba1.html
An Introduction to Modern Econometrics Using Stata:
http://www.stata-press.com/books/imeus.html


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