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Re: st: Fixed Effects GLS


From   May Ster <mayfrank@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: Fixed Effects GLS
Date   Wed, 13 Apr 2011 23:09:27 +0100

Dear Adda and Mark,

As the FE is the GLS , i would like to know whether -xtgls - allows
the assumption in which there might be arbitary correlations between
explantory varialbles and individual effect.

I ask this because, under the FE model, using-xtreg, fe- the time
invariant variables have to be omitted. Thus, if -xtgls- allows
arbitary correlations between explanatory variables and individual
effect, it is more informative.

Please help.

maysa


On Tue, Apr 12, 2011 at 7:58 PM, May Ster <mayfrank@gmail.com> wrote:
> Dear all,
>
> If i'm not wrong, the -xtgls- does only available for random effects.
> I guess i do get what you mean Andrea that you want to get an estimate
> of what you mentioned " the
> (T-1)*(T-1) covariance matrix of the error component is not an
> identity matrix (multiplicated for sigma) but it is estimated in a
> first stage"
>
> Then i guess... there might not be an option for FE-GLS as what you
> might want to do in STATA?
>
> Am i right here?
>
> Maysa,
>
> On Tue, Apr 12, 2011 at 1:27 PM, Andrea Morescalchi
> <morescalchi@ec.unipi.it> wrote:
>> Thank you vey much Mark. I will look into this interpretation of FE, which I
>> didn't know.
>>
>> But, regardless of the definition, I still do not understand how to tell
>> Stata to estimate what in the 10 Chapter of Wooldridge (2002) is called
>> FEGLS. Basically, I would like to estimate in Stata a FE where the
>> (T-1)*(T-1) covariance matrix of the error component is not an identity
>> matrix (multiplicated for sigma) but it is estimated in a first stage.
>>
>> Thanks
>> Andrea
>>
>> On Tue, 12 Apr 2011 11:28:47 +0100
>>  "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk> wrote:
>>>
>>> Andrea,
>>>
>>>> -----Original Message-----
>>>> From: owner-statalist@hsphsun2.harvard.edu
>>>> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Andrea
>>>> Morescalchi
>>>> Sent: Tuesday, April 12, 2011 9:57 AM
>>>> To: statalist@hsphsun2.harvard.edu
>>>> Subject: Re: st: Fixed Effects GLS
>>>>
>>>> Dear Ada and Maysa,
>>>> I was trying too to estimate the FEGLS as presented in Wooldridge (2002),
>>>> but with only one error component.
>>>>
>>>> Anyway, I cannot understand properly the first line of Ada's response:
>>>> "Fixed Effects model is a kind of GLS model. Use the basic FE commands and
>>>> you will be fine."
>>>> I red carefully the Chapter 10 in Wooldridge, but I cannot see among the
>>>> - xtreg, FE - options available which is that for doing FEGLS. In
>>>> particular, the options available for vce are: conventional, robust,
>>>> cluster, bootstrap, or jackknife.
>>>> FEGLS implies a particular structure for the (T-1)*(T-1) covariance
>>>> matrix for the errors, i.e. the matrix is estimated after a standard FE in
>>>> the first step where this matrix is an identity matrix multiplicated for the
>>>> T-constant variance parameter.
>>>> Among FE Stata options the most proper to do FEGLS would seem:
>>>> "vce(conventional), the default, uses the conventionally derived variance
>>>> estimator for generalized least squares regression". This line is a bit
>>>> strange to me since it seems to imply that the standard FE Stata regression
>>>> is actually a FEGLS!
>>>
>>> It is indeed, and not just in Stata.  The FE estimator is, by
>>> definition, a GLS estimator.
>>>
>>> I am sure this is discussed in Jeff Wooldridge's book somewhere (there's
>>> a 2010 edition out, by the way), but I don't have it handy and can't
>>> direct you to the right chapter/page.  Another place you might look is
>>> Arellano's 2003 book, "Panel Data Econometrics".  In chapter 2 (I think)
>>> he shows that the FE estimator is the GLS estimator obtained after
>>> applying the first-differencing transformation.
>>>
>>> --Mark
>>>
>>>> I computed the FE and the FEGLS separately in Matlab and it turns out
>>>> that the "conventional" Stata FE is identical to that with error v-c matrix
>>>> equal to an identity matrix (multiplicated for sigma_u). But which is the
>>>> option which tells Stata to estimate the v-c matrix in the first step?
>>>>
>>>> Thanks in advance
>>>> Andrea
>>>>
>>>> On Tue, 12 Apr 2011 00:09:11 +0000
>>>>  "Ada Ma" <heu034@googlemail.com> wrote:
>>>> >Fixed Effects model is a kind of GLS model. Use the basic >FE commands
>>>> > and you will be fine. > > There are user written commands for two way FEs
>>>> > but I >can't remember the commands' names, sorry! There are two >of them and
>>>> > they r both featured in the Stata Journal, >one of the authors for one
>>>> > command is Upward. HTH.
>>>> > > > Sent using BlackBerry(r)
>>>> > > -----Original Message-----
>>>> >From: May Ster <mayfrank@gmail.com>
>>>> > Sender: owner-statalist@hsphsun2.harvard.edu
>>>> > Date: Mon, 11 Apr 2011 23:10:06 > To: <statalist@hsphsun2.harvard.edu>
>>>> > Reply-To: statalist@hsphsun2.harvard.eduSubject: st: >Fixed Effects GLS
>>>> > > Dear Statalist,
>>>> > > I tried reading Woolridge (2002), Chapter 10 after he >mentioned
>>>> > choosing between Random effects model and Fixed effects >model, he does
>>>> > mentioned 'Fixed Effects GLS".
>>>> > > I'm not sure how does this apply to STATA command if i >want to use
>>>> > 'Fixed Effects GLS".
>>>> > > If my model is a two-way fixed effects model, Basically, >is the
>>>> > > 'Fixed
>>>> > Effects GLS" can be written like this (i've checked for >serial
>>>> > correlation in error terms) ;
>>>> > > xi: xtgls var1 var2 var3 i.year , panel(hetero) >corr(psar1)
>>>> > > > Please help.
>>>> > > Thank you very much in advance
>>>> > > Maysa
>>>> > *
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>>>>
>>>
>>>
>>> --
>>> Heriot-Watt University is a Scottish charity
>>> registered under charity number SC000278.
>>>
>>>
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>

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