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RE: st: xttest0 confusion


From   Humaira Asad <humairaasad@hotmail.com>
To   STATA HELP <statalist@hsphsun2.harvard.edu>
Subject   RE: st: xttest0 confusion
Date   Thu, 12 May 2011 09:15:33 +0000

 
 
 
 
Thank you Kit for your reply. I have done the Hausman test and Wooldridge's robust Hausamn test, both suggest that RE is consistent. The confusion is if the country effects are random (as identified by BP test), still there is serial correlation in the errors. What is the econometric reason for it? If it is because of endogeneity, then why BP is saying the country effects are random and we assume that the eit is iid?
 
Kindly suggest any papers which explain the reasons in this context also. I shall be highly obliged.



Humaira Asad
PhD Research Scholar

UoE Business School

University of Exeter, England



----------------------------------------
> From: kit.baum@bc.edu
> To: statalist@hsphsun2.harvard.edu
> Date: Wed, 11 May 2011 20:52:08 -0400
> Subject: re: st: xttest0 confusion
>
> <>
>
> 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
>
> Kit Baum | Boston College Economics & DIW Berlin | http://ideas.repec.org/e/pba1.html
> An Introduction to Stata Programming | http://www.stata-press.com/books/isp.html
> An Introduction to Modern Econometrics Using Stata | http://www.stata-press.com/books/imeus.html
>
>
>
>
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