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st: Cross sectional dependence panel data random effects


From   Rauf Berent <rsberent@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   st: Cross sectional dependence panel data random effects
Date   Fri, 20 Jul 2012 11:41:38 +0200

Hello,


I would really appreciate some help regarding how to check for cross
sectional dependence in a random effects model when you have a highly
unbalanced panel.

I have an unbalanced panel (Number of obs: 1560, Groups: 213,
Observations per group max: 10, avg: 7.3) as my data consists of a lot
of companies that have been de-listed, merged or newly listed during a
10 year period.

I have done a Hausman test and concluded that I should use a random
effects model.

When checking for cross sectional dependence/contemporaneous
correlation in a random effects model xttest2 does not seem to work so
I have downloaded and used a user written program

ssc install xtcsd

The results I get are the following

. xtcsd, pesaran abs
Error: The panel is highly unbalanced.
Not enough common observations across panel to perform Pesaran's test.
insufficient observations

. xtcsd, friedman
no observations

xtcsd, frees
no observations

I am not really sure how to proceed as I was under the impression that
an unbalanced panel was not a problem for Pesaran. I also was under
the impression that friedman and frees tackle unbalanced panels by
only using observations available for all cross sectional units. Being
new to Stata and econometrics I would really appreciate all the help I
can get.

Thanks in advance,

Rauf
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