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# Antwort: st: xtreg postestimation and regression using residuals or dummies<Watchdog: Virus checked>

`HI`

`ad 2 c)`

`I think you should not do this two-step approach by hand as the standard errors have to be corrected in the second stage, among other things.`

`But there is a user written ado-file by Troeger and Pluemper which seems to do exactly what you want.`

`it is called 'xtfevd'`

`(try findit)`

`Justina`

`Dr. Justina A.V. Fischer, M.A.`

`University of St. Gallen`

`CH-9000 St. Gallen`

`-----owner-statalist@hsphsun2.harvard.edu schrieb: -----`

`An: statalist@hsphsun2.harvard.edu`

`Von: "alessia matano" <alexis.rtd@gmail.com>`

`Gesendet von: owner-statalist@hsphsun2.harvard.edu`

`Datum: 30.09.2007 07:53PM`

`Thema: st: xtreg postestimation and regression using residuals or dummies <Watchdog: Virus checked>`

`Hi to everybody,`

`I have some questions for you about two issues:`

`1. xtreg , fe postestimation: which are the residuals the option`

`predict, e gives after xtreg, fe?? are the centered or not residuals?`

`I think they are the residuals in absolute levels..but I am not sure`

`2. the most important question is the following:`

`I have the following model:`

`Yrt=a+bXrt+cQrt+eit (1)`

`where both Yrt and Xrt comes from the aggregation at r level (r say`

`region) of individual varibales (y wages and X average age, percentage`

`of female, etc.)`

`Qrs are a set of aggregate variables by definition (say regional`

`exports) whose I want to study the effect on Y. I directly estimate`

`with a fe model this model and it works. Afterwards some people`

`suggest me to perform in two steps this estimation, in three possible`

`ways, in the way to account for individual observed and unobserved`

`heterogeneity (instead of relying on some average of those, such ase`

`average age...) :`

`A. regressing Yit=a+bXit+eit with a fe model and then take the`

`residuals (added to the constant) the perform the regression on Xrt`

`(like averaging the residuals over rt). In this way it does not work.`

`Anyone of you does know why?`

`B. regressing Yi=a+bXi+Dr+ei for any year with (I suppose) a simple`

`ols model and then keep the estimates for the dummies and put them`

`into the regression Drt=cXrt+urt.`

`C. regressing Yit=a+bXit+Drt+eit with a fe model and then keep the`

`estimates for the dummies and put them into the regression`

`Drt=cXrt+urt. In the last way (I think it is the better) you get the`

`estimates cleaned by observed and unobserved individual heterogeneity.`

`However I know you have to do some manipulations to the estimates in`

`order to get reliable estimates (the dummy are in comparison with a`

`base value), but i do not know exactly which. Can anyone help me?`

`Which of those do you think is more correct, for such an estimation i`

`want to do? It is a robustness check of the estimation (1).`

`Many many thanks for your suggestions`

`alessia`

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