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Re: st: RE: xtpcse vs. newey2 or itivreg2


From   "Mark Dincecco" <m.dincecco@imtlucca.it>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: RE: xtpcse vs. newey2 or itivreg2
Date   Mon, 3 Mar 2008 19:01:45 +0100

Dear Mark,

Thanks so much for your help. I will take a look at the two works
cited. And thanks for writing up xtivreg2 - it's really useful!

Sincerely,
Mark

On Mon, Mar 3, 2008 at 5:12 PM, Schaffer, Mark E <M.E.Schaffer@hw.ac.uk> wrote:
> Mark
>
>  > -----Original Message-----
>  > From: owner-statalist@hsphsun2.harvard.edu
>  > [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of
>  > Mark Dincecco
>  > Sent: Monday, March 03, 2008 3:19 PM
>  > To: statalist@hsphsun2.harvard.edu
>  > Subject: st: xtpcse vs. newey2 or itivreg2
>  >
>  > Hello,
>  >
>  > I have an unbalanced panel data set with a very large T to N ratio.
>  > Essentially, I follow 5 countries over a period of 200 or more years.
>  > I would like to correct for contemporaneously correlated
>  > errors, panel heteroskedasticity, and common serial
>  > correlation. I have opted to use xtpcsce, newey2, or xtivreg2
>  > rather than xtgls following Beck and Katz (1995).
>  >
>  > The basic specifications look like:
>  >
>  > *xtpcse
>  >
>  > xi: xtpcse y x1 x2, corr(ar1)
>  >
>  > *newey2
>  >
>  > xi: newey2 y x1 x2, force lag(1)
>  >
>  > *xtivreg2
>  >
>  > xi: xtivreg2 y x1 x2, bw(2) robust small
>  >
>  > I have two questions. The first is the most critical:
>  >
>  > 1. Is the only difference here between newey2 or xtivreg2 AND
>  > xtpcse that xtpcse controls for contemporaneously correlated
>  > errors while newey2 or xtivreg2 does not?
>
>  Not quite.  As I understand it, xtpcse uses a specific functional form,
>  namely AR(1).  xtivreg2 (and newey2) do not.  Rather, they are robust to
>  arbitrary autocorrelation, but underlying this are asymptotics that
>  require the number of lags used in the calculation (the bandwidth) to go
>  off to infinity.
>
>  Hayashi's (2000) "Econometrics" textbook has a good discussion.  For a
>  very abbreviated discussion, see Baum-Schaffer-Stillman in the latest
>  issue of the SJ (Vol. 7, No. 4, 2007).
>
>  > I ask because newey2 offers better results than xtpcse but I
>  > wonder if that is because newey2 does not correct for
>  > contemporaneously correlated errors. If not, then I will go
>  > with the newey2 estimates.
>  >
>  > 2. Is the only difference here between newey2 AND xtivreg2
>  > that xtivreg makes an adjustment for the degrees of freedom?
>
>  No, it's the other way around.  newey2 makes a small-sample adjustment
>  and reports t-stats.  xtivreg2 will make this adjustment if you supply
>  the -small- option; without it, it reports z-stats and does not make the
>  adjustment.
>
>  Also, xtivreg2 has a wide range of kernels available beyond the Bartlett
>  kernel ("Newey-West") used by newey2.  There are some other differences
>  as well (e.g., handling of gaps in time series, which I think xtivreg2
>  handles more gracefully - at least, Kit Baum and I put a fair amount of
>  thought into how to handle it in the straight time series context).
>
>  Cheers,
>  Mark (author of xtivreg2)
>
>  Prof. Mark E. Schaffer
>  Director
>  Centre for Economic Reform and Transformation
>  Department of Economics
>  School of Management & Languages
>  Heriot-Watt University
>  Edinburgh EH14 4AS  UK
>  44-131-451-3494 direct
>  44-131-451-3296 fax
>  http://www.sml.hw.ac.uk/cert
>
>
>  > I ask simply for completeness.
>  >
>  > Thanks very much for your help. I really appreciate it.
>  >
>  > Sincerely,
>  > Mark
>  >
>  > PS. This inquiry was first submitted on Sunday. I thank Clive
>  > for his suggestion at that time. However, as he notes his
>  > answer was insufficient. I thus resumbit an updated version
>  > of the questions now.
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