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st: Does XTGLS allow for correlations between explanatory variables and individual effect?


From   May Ster <mayfrank@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   st: Does XTGLS allow for correlations between explanatory variables and individual effect?
Date   Wed, 13 Apr 2011 21:45:18 +0100

Dear Statalist,


If my model is of the form

Yit = a + bXit + cZi + ui + ei

where a is constant, Xit is a set of time-variant variables, Zi is a
set of time-invariant variables, ui is individual effect and ei is
idiosyncratic error term.

I have tested for the appropriateness of the RE VS. FE model. The
Hausman test shows that FE is prefered (signalling there are
correlations between explanatory variables and individual effect) In
addition, i also found serial correlations in the error terms.

I then want to apply -xtgls-

Then my confusion is regarding -xtgls- as i'm not certain whether
-xtgls- in its structure allow correlations between explanatory
varialbes and individual effects just as FE does.
This is because if it does, i guess i'm saved by relying on -xtgls-

your help will be much appreciated.

best,

may

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