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From |
Misha Spisok <misha.spisok@gmail.com> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
Re: st: RE: lagged variables in FE models |

Date |
Wed, 16 Jun 2010 09:45:55 -0700 |

Dear Mareike, Do you mean a lagged dependent variable? If so, I think the reason is, essentially, that the lagged dependent variable is correlated--by construction--with the error term. y_i,t = b0 + b1*y_i,t-1 + epsilon_i,t = b0 + b1*y_i,t-1 + mu_i + nu_i,t where epsilon_it = mu_i + nu_it. That is, in the unobserved effects model (which includes the fixed-effects model), the unobserved effect is mu_i. Then, y_i,t-1 = b0 + b1*y_i,t-2 + epsilon_i,t-1 = b0 + b1*y_i,t-2 + mu_i + nu_i,t-1 So, y_i,t = b0 + b1*y_i,t-1 + epsilon_i,t = b0 + b1*[b0 + b1*y_i,t-2 + epsilon_i,t-1] + epsilon_i,t = b0 + b1*[b0 + b1*y_i,t-2 + mu_i + nu_i,t-1] + mu_i + nu_i,t Or, more clearly (I hope), Cov(y_i,t-1, epsilon_i,t) = Cov([b0 + b1*y_i,t-2 + mu_i + nu_i,t-1], [mu_i + nu_i,t]) ~= 0 The correlation is not equal to zero because, at the very least, Corr(mu_i, mu_i) = 1. As usual, please correct my errors. Best, Misha On Wed, Jun 16, 2010 at 9:22 AM, Rodolphe Desbordes <rodolphe.desbordes@strath.ac.uk> wrote: > Dear Mareike, > > This is well explained in most standard textbooks. See for instance > > http://www.econ.kuleuven.be/gme/ > > Rodolphe > > > > -----Original Message----- > From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Mareike > Sent: 16 June 2010 16:06 > To: statalist@hsphsun2.harvard.edu > Subject: st: lagged variables in FE models > > Dear Statalist, > > is it true that lagged variable cannot be included in fixed effects models? > That is what I have been told by a friend but I don't really see why that > should be the case. Unfortunately, I couldn't find any information on this > topic in the literature so maybe one of you knows something about it. > > Thanks in advance > > Mareike > > * > * For searches and help try: > * http://www.stata.com/help.cgi?search > * http://www.stata.com/support/statalist/faq > * http://www.ats.ucla.edu/stat/stata/ > > * > * For searches and help try: > * http://www.stata.com/help.cgi?search > * http://www.stata.com/support/statalist/faq > * http://www.ats.ucla.edu/stat/stata/ > * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**AW: st: RE: lagged variables in FE models***From:*"Mareike" <MareikeHahr@aol.com>

**References**:**st: lagged variables in FE models***From:*"Mareike" <MareikeHahr@aol.com>

**st: RE: lagged variables in FE models***From:*Rodolphe Desbordes <rodolphe.desbordes@strath.ac.uk>

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