  # Re: st: xtreg

 From Ulrich Kohler To statalist@hsphsun2.harvard.edu Subject Re: st: xtreg Date Tue, 3 Dec 2002 09:09:59 +0000

```Lee Chuntao  wrote
>      Can i run the following panel regression with fixed effect ?
>
>      y(i,t)=constant+ w(i)' * alpha + x(i,t)'*beta+u(i,t)
>
>
>      where w(i) is a vector of individaul specific but time invariant
> variables
>      x(i,t) is individual & time variant
>      u(i,t) is the residual term
>
>     the command i used is : xtreg y w x, fe
>     stata dropped the w(i) automatically in the regression, why?

You can't. The fixed-effects model allows different intercepts for each
individual, that is

y_it = constant_i + x_(it)b + u_it

All variables which are constant within persons (all time invariate
variables) are collinear with the individual intercepts. There is no way to
use them in a fixed effects model.

Another way to look at this is by looking at an alternative formulation of
the fixed effects model:

_               _                   _
y_it - y_i  =  (x_it - x_i)* b_1 + (z_it - z_i) * b_2 + u_it

_
If z is constant within time for each individual the term (z_it - z_i)
becomes zero for all observarions.

regards
uli

--
ukohler@sowi.uni-mannheim.de
http://www.sowi.uni-mannheim.de/lesas

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```

• References:
• st: xtreg
• From: "Lee Chuntao" <chtl@econ.hku.hk>