# Re: st: random effects panel model - interpretation of rho=0

 From John Antonakis To statalist@hsphsun2.harvard.edu Subject Re: st: random effects panel model - interpretation of rho=0 Date Wed, 20 May 2009 20:15:37 +0200

```One definition of Rho (I am not sure if Stata uses this definition) is :

(MSb - MSw)/((MSb + (k-1)*MSw))

Where, k is the average group size; MS=mean square; b=between; w=within.

```
So, a rho of zero is telling you that that the variablilty within clusters is large relative to between; thus, your xtreg estimates are convering to OLS estimates.
```
```
What does -xttest0- tell you? Having random effects means that the intercept varies between subjects.
```
```
Also, when you run in OLS (with cluster robust SEs) are your estimates different from the xtreg estimator (they should not be)?
```
Best,
J.

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On 20.05.2009 19:52, P K wrote:
```
```Hi,

I run a random effects panel model of 64 subjects for 10 years each and have a question concerning the results: My output tells me that
0% of the variance of the dependent variable is between subjects and 100% is within subjects (rho).

I am not sure whether I understand the interpretation correctly, but I find this result a bit uncommon given that I test for a random effects model and
```
my theory predicts a lot of variation between my subjects.
```Could there by any mistake in the analysis?
```
Thanks, Pat
```
```
Here's the STATA output:
```Random-effects GLS regression                   Number of obs      =       545
Group variable: number                          Number of groups   =        64

R-sq:  within  = 0.0138                         Obs per group: min =         2
between = 0.1741                                        avg =       8.5
overall = 0.0168                                        max =        10

Random effects u_i ~ Gaussian                   Wald chi2(7)       =      9.16
corr(u_i, X)       = 0 (assumed)                Prob > chi2        =    0.2416

------------------------------------------------------------------------------
AverCh~2adj2 |      Coef.   Std. Err.      z    P>|z|     [95% Conf. Interval]
-------------+----------------------------------------------------------------
duration_c~e |  -.9013214   .3550697    -2.54   0.011    -1.597245   -.2053976
sicchange |   2.527742   4.073774     0.62   0.535    -5.456709    10.51219
ukdum |   .5491039   1.126746     0.49   0.626    -1.659277    2.757485
frendum |  -1.780095   1.522111    -1.17   0.242    -4.763378    1.203189
regnlistdum |  -.6389011    1.09439    -0.58   0.559    -2.783865    1.506063
mutdum |   .9720512   1.790017     0.54   0.587    -2.536318     4.48042
lgcount_st~y |  -.2016355   .6181168    -0.33   0.744    -1.413122    1.009851
_cons |   1.249498   1.361879     0.92   0.359    -1.419735    3.918731
-------------+----------------------------------------------------------------
sigma_u |          0
sigma_e |  11.774903
rho |          0   (fraction of variance due to u_i)
------------------------------------------------------------------------------

```
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```
```*
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```