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Re: st: xtlsdvc, number of lags, time dummies


From   Giovanni Bruno <[email protected]>
To   [email protected]
Subject   Re: st: xtlsdvc, number of lags, time dummies
Date   Tue, 5 Jul 2005 02:40:14 +0200

Ivan Tasic <[email protected]> wrote:

> Howdy!
> 
> I have three questions. The basic model used for -xtlsdvc- is as follows:
> y_it = gamma*y_i,t-1 + x'_it*beta + eta_i + e_it
> 
> 1. Is there any way to specify how many lags of dependent variable we want 
> to use in -xtlsdvc-, or one lag is the only option? What's the consequence 
> of including additional lags manually - as regressors?

No, the bias correction in -xtlsdvc- can only work for a model with one 
lag of the dependent variable 
 
> 2. Would bias correction work properly if we use time dummies?

Yes, it will.

> 3. I use a large TSCS (n=67, T=398, weekly data), and the bias looks very 
> small compared to -xtreg, fe-. I guess that asymptotics kick in pretty well.
> Since it took Stata 9 forever to calculate robust standard errors (I did use
> the highest level of precision O(1/NT^2), is there any advice how to speed 
> it up, except to buy a better computer?

Just be patient... In your case the time dimension seems larger than 
the typical sample sizes for which these procedures are designed and tested. 
Anyway, -xtlsdvc- is much faster when initialized by the Anderson-Hsiao
estimator with no apparent loss compared to the other two initial estimators.
Also, keep the number of replications to a reasonable level (right now
I'm using vcov(50) with N=31 and T=24). For more explanation and references 
look at my paper

http://ideas.repec.org/p/cri/cespri/wp165.html

Hope this helps

Giovanni
(author of -xtlsdvc-)

-- 
Giovanni S.F. Bruno
http://ideas.repec.org/e/pbr136.html
Istituto di Economia Politica, Universit´┐Ż Bocconi
Via U. Gobbi, 5, 20136 Milano
Italy
tel. + 02 5836 5411
fax. + 02 5836 5438
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