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Re: st: areg vs xtreg, fe


From   "Clive Nicholas" <clivelists@googlemail.com>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: areg vs xtreg, fe
Date   Tue, 5 Feb 2008 09:27:50 +0000

Jenny Montaldo wrote:

[...]

> Another related question concern the estimates for white collars. The xtreg, fe have an
> overall r^2 of 0.27 (much better than the previous one). However when I try the areg
> command it says that the matrix is not positive definite (I use also some lagged values of > my variable of interests in the estimation).

If your T is small, you should be aware that using lagged dependent
variables in a fixed-effects model generates biased parameter
estimates. See Judson and Owen (1999) for more on this.

If you insist in using LDVs in this situation, then you may have to go
the IV route, after which things can get quite messy.

-- 
Clive Nicholas

[Please DO NOT mail me personally here, but at
<clivenicholas@hotmail.com>. Thanks!]

Judson RA and Owen AL (1999) "Estimating Dynamic Panel Data Models: A
Guide For Macroeconomists", Economics Letters 65(1): 9-15.
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