Dear All,
I have a problem understanding how Stata computes the results for a
two-way error component model (xi: reg y i.idfirm i.idtime x1) and
hopefully somebody will be able to help me with this. In the case of
a fixed effects model, we can obtain the results in Stata either by
using xtreg, areg or simply based on the demeaned values using
regress option. Can we apply the last option (demeaning) for the two-
way error component model? (i.e., can we run a two-way error
component model based on the mean differences)? If so, what means
shall we extract?
For instance, if we run xi: reg y i.idfirm i.idtime x1 the obtained
results are not equal to the results based on
regress y x2, where x2=x1-x(meanidfirm)-x(meanidtime)
Or as suggested by Green (1997)
regress y x3, where x3=x1-x(meanidfirm)-x(meanidtime) + x(firm-year
specific mean).
Does Stata use a specific procedure to run a two-way error component
model different from the ones mentioned above? Any suggestions or
comments are more than appreciated.
Many thanks for your help,
Svetlana
*
* For searches and help try:
* http://www.stata.com/support/faqs/res/findit.html
* http://www.stata.com/support/statalist/faq
* http://www.ats.ucla.edu/stat/stata/
