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st: RE: 'xtoverid"


From   "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: RE: 'xtoverid"
Date   Tue, 24 Apr 2012 19:49:24 +0100

DD,

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of D. 
> Demetriou
> Sent: 24 April 2012 18:27
> To: statalist@hsphsun2.harvard.edu
> Subject: st: 'xtoverid"
> 
> Hi everyone,
> 
> This question is adressed to Prof. Mark Schaffer (author of 
> xtoverid)but maybe others can help.
> 
> Xtoverid can be used to decide between FE Vs. RE when 
> heteroskedasticity and/or cluster errors are present.
> 
> My question is: Are the extra orthogonality conditions, which 
> xtoverid is testing, imposed by the FE estimator or by 
> heteroskedasticity and/or clustering?

Neither.

The extra orthogonality conditions being tested are those imposed by the
RE estimator.  These are the conditions that the Xs are orthogonal to
the time-invariant error u_j.

Also, allowing for heteroskedaticity or clustering doesn't "impose"
anything, let alone impose orthogonality conditions.  On the contrary -
it means the test statistic is robust to (has the right distribution
under the null even in the presence of) heteroskedasticity and
clustering.

HTH,
Mark

> Yours,
> 
> DD
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