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re: st: xttest0 confusion

From   Christopher Baum <>
To   "" <>
Subject   re: st: xttest0 confusion
Date   Wed, 11 May 2011 20:52:08 -0400

I have estimated the folowing model using re vce(cluster country) and then run the BP test which is significant. This means the individual country effects are random. But when I estimate serial scorrelation in the residuals there is serial correlation present. What should I do, it indicates endogeneity in the regressors? If yes why BP test is showing country effects are random? Confused?

The BP test you are using merely considers whether the variance of the random effect can be distinguished from zero, which it can.

But the test you should be concerned with, first and foremost, is the Hausman test comparing this model to the respective fixed effects model. If that test rejects, you should not be using random effects, for those estimates are inconsistent.


Kit Baum   |   Boston College Economics & DIW Berlin   |
                              An Introduction to Stata Programming  |
   An Introduction to Modern Econometrics Using Stata  |

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