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Re: st: Testing for serial correlation in small panel samples


From   Scott Merryman <scott.merryman@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: Testing for serial correlation in small panel samples
Date   Wed, 7 Sep 2011 13:10:05 -0500

It is based on -xtreg,fe-   The BFN Durbin Watson is also easy to calculate.

Compare:

webuse grunfeld,clear
qui xtregar inv mva, fe lbi
disp "modified Bhargava et al. Durbin-Watson = " e(d1)

qui xtreg inve mval, fe
predict double e,e
gen double bfn = sum((e- l.e)^2)/sum(e^2)
cl bfn in l, noobs


The original BFN paper supplies upper and lower bounds for Durbin
Watson statistic.   For a large number of cross sections, if it less
than 2 then it would indicate positive serial correlation.

See:

Bhargava, A., Franzini, and W. Narendranathan. 1982. "Serial
correlation and fixed effects model." Review of
    Economic Studies 49, p. 533 - 549.

and

http://books.google.com/books?id=uEFm6pAJZhoC&lpg=PP1&pg=PA374#v=onepage&q&f=false


Scott

On Wed, Sep 7, 2011 at 12:09 PM, christina sakali
<christina.sakali@googlemail.com> wrote:
> Dear Scott,
>
> thanks a lot for the suggestion.
>
> I have a question though: Does the Bhargava et al's DW stat., reported
> by the -lbi- option, refer to the original xtreg regression or the
> xtregar one, which is corrected for first-order serial correlation?
>
> I guess what I need to know is: can I use the Bhargava stat. from the
> -lbi- option  as an indication of serial correlation in my original
> xtreg regression or is this irrelevant?
>

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