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Re: st: Tests for cross sectional dependence when xttest2 doesn't work

From   Christopher Baum <>
To   "" <>
Subject   Re: st: Tests for cross sectional dependence when xttest2 doesn't work
Date   Wed, 8 Jun 2011 03:26:33 -0400

On Jun 8, 2011, at 8:33 AM, Rado wrote:

> I would like to test for the presence of cross-sectional dependence in my
> unbalanced panel dataset. However when running the xttest2 command, I receove
> the following error message:
> " xttest2
> Correlation matrix of residuals is singular.
> not possible with test
> Is it possible to overcome this limit of the command? Is there another
> alternative to xttest2?

No. The residual correlation (or covariance) matrix is computed from N vectors of length T in the case of a balanced panel. Obviously if N > T those N vectors cannot be linearly independent, and the rank of the matrix produced must be deficient. This is the same constraint that applies to SUR (-sureg-): you cannot have more equations than time periods per equation. In the case of a large-N, small-T panel, -xttest2- cannot be used.

author xttest2

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

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