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st: (fixed effect) sigma_u & s.d. of u


From   Kit Baum <kitbaum@mac.com>
To   statalist@hsphsun2.harvard.edu
Subject   st: (fixed effect) sigma_u & s.d. of u
Date   Fri, 05 Sep 2008 20:54:36 -0400

< >
Man Jia said
Sorry to bother you with a very simple question. I just can't figure
out why in my xtreg,fe output is value for sigma_u and the value for
sd. of predicted u is not the same. I'm thinking I must have got lost
with some simple thing. Could anyone give some hint? Thanks in advance!

At the bottom of the result from --xtreg,fe stata reports sigma_u. I'm
thinking it means the standard deviation of u(fixed effect). Please
correct me if I'm wrong here. Then, I use --predict u,u to get variable
u. But the standard deviation of u is not the same as sigma_u. I think
either I misunderstand sigma_u's meaning or predicted u's meaning. Any
comments is highly appreciated.


webuse grunfeld
xtreg invest mvalue kstock,fe
predict u, u
egen oneu = tag(company)
su u if oneu

There are only ten unique values of u_i. Their s.d. is indeed the same as that reported by sigma_u.

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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