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Re: Re: st: fully modified OLS and dynamic OLS


From   Robert A Yaffee <bob.yaffee@nyu.edu>
To   statalist@hsphsun2.harvard.edu
Subject   Re: Re: st: fully modified OLS and dynamic OLS
Date   Wed, 18 Mar 2009 23:25:23 -0400

Peter,
  The fully modified OLS was developed by Phillips and Hansen in 1990.
Their option corrects for endogeneity and serial correlation.   The Newey-West
option is the closest thing to that but it does not necessarily correct
for endogeneity in a multivariate system.  Perhaps the 3sls in the reg3
command would give you a close approximation.
   -  Regards,
           Bob Yaffee
 
   

Robert A. Yaffee, Ph.D.
Research Professor
Silver School of Social Work
New York University


Biosketch: http://homepages.nyu.edu/~ray1/Biosketch2008.pdf

CV:  http://homepages.nyu.edu/~ray1/vita.pdf

----- Original Message -----
From: Grant Peter Kabango <g.kabango.1@research.gla.ac.uk>
Date: Wednesday, March 18, 2009 10:09 pm
Subject: Re: Re: st: fully modified OLS and dynamic OLS
To: statalist@hsphsun2.harvard.edu


> Thank you Michael.
> 
> Grant
> 
> -----Original Message-----
> From: Michael Hanson <mshanson@mac.com>
> To: statalist@hsphsun2.harvard.edu
> Date: Wed, 18 Mar 2009 21:57:12 -0400
> Subject: Re: st: fully modified OLS and dynamic OLS
> 
> On Mar 18, 2009, at 6:37 PM, Grant Peter Kabango wrote:
> 
> > I would like to estimate using the fully modified OLS (FMOLS) and  
> > dynamic OLS (DOLS), and I wish to find out the Stata command for  
> > these processes.
> 
> 
> On Mar 18, 2009, at 7:01 PM, Martin Weiss wrote:
> 
> > -findit- does not return any results. Are these procedures known  
> > under any other name?
> 
> 
> The short answers are no (to Grant: "Are FM-OLS or DOLS currently  
> implemented in Stata?") and no (to Martin: "Are they known by other  
> names?").  Note that this request and the corresponding response  
> about alternative names reappear on Statalist roughly every year or  
> two (and apparently has been more popular recently):
> 
> <
> <
> <
> <
> <
> 
> 
> FM-OLS and DOLS are single equation estimators for cointegrated  
> relationships.  Given that this is a fairly specialized topic in time  
> 
> series analysis, I don't believe they can be found in other  
> Stata .ado files under different names.  (Although I would be happy  
> to be proven wrong on that point.)
> 
> Dynamic OLS is quite easy to implement in Stata, since it just  
> involves augmenting a (super-consistent) OLS estimate of the  
> cointegrating relationship with leads and lags of the RHS variable.   
> 
> For appropriate inference, HAC standard errors must be used.  Below  
> is a simple (and very stylized) example.  Note that this example uses  
> 
> both -ivreg2- and -freduse-, which are available from SSC.
> 
> 
> // Begin example
> 
> clear
> freduse GDPC96 PCECC96
> gen t = qofd(daten)
> format t %tq
> drop date*
> tsset t
> 
> gen y = ln(GDPC96)
> gen c = ln(PCECC96)
> 
> ivreg2 c y L(-4/4)D.y, bw(auto) robust
> ivregress 2sls c y L(-4/4)D.y, vce(hac nw opt)
> 
> // End example
> 
> The coefficient on y in each regression will be the estimate of the  
> parameter B in the cointegrating vector [1 -B], such that [c y] [1 - 
> B]' ~ I(0).  Note that -ivreg2- will work with Stata 9 or better  
> (once installed); -ivregress- was introduced in Stata 10.  They  
> should return identical results in the above example.
> 
> 
> The FM-OLS estimator is a little more sophisticated, and -- as far as  
> 
> I can tell -- no one has contributed a user-written version.  Thus,  
> your options are (1) write it yourself (see the references below --  
> would be a good exercise to implement in Mata); (2) use a system  
> estimator (such as -vec-); or (3) use a different statistical  
> package.  (For example, FM-OLS has been implemented in RATS: see  
> <http://www.estima.com/ 
> procs_perl/panelfm.src>.  Procedures may also have been written for  
> R, but a quick search did not turn up anything.)
> 
> Hope this helps.  Perhaps the next time someone looks for the DOLS or  
> 
> FM-OLS estimators, they will search the mailing list archive first.
> 
> -- Mike
> 
> 
> References:
> 
> Banerjee, Anindya, et al, "Co-integration, Error-Correction, and the  
> 
> Econometric Analysis of Non-Stationary Data," Oxford University  
> Press, 1993.
> 
> Maddala, G.S. and In-Moo Kim, "Unit Roots, Cointegration, and  
> Structural Change," Cambridge University Press, 1998.
> 
> Phillips, Peter and Bruce Hansen, "Statistical Inference in  
> Instrumental Variables Regression with I(1) Processes," Review of  
> Economic Studies, v.57, 1990, pp. 99-125.
> 
> Phillips, Peter, "Fully Modified Least Squares and Vector  
> Autoregression," Econometrica, v.63 n.5, 1995, pp. 1023-1078.
> 
> Stock, James and Mark Watson, "A Simple Estimator of Cointegrating  
> Vectors in Higher Order Integrated Systems," Econometrica, v.61 n.4,  
> 
> 1993, pp. 783-820.
> 
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