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st: xtregar and lagged dependent variable?

From   "Ivan Tasic" <[email protected]>
To   <[email protected]>
Subject   st: xtregar and lagged dependent variable?
Date   Thu, 7 Jul 2005 06:12:09 -0500


I spent hours checking the archives and nothing came up, so I'll have to ask you this one. I need to know if -xtregar- can be run with a lagged dependent variable (LDV) in a large panel (T = 400, n = 70, unbalanced).

I ran -xtregar depvar indepvar, fe- and obtained rho = 0.64, indicating that DW = 0.72 (Baltagi-Wu LBI = 0.78), i.e. there is positive serial correlation in my model. I also checked -xtserial- and it was significant. When I included a LDV, rho = -0.49, so that DW = 2.98 (Baltagi-Wu LBI = 2.56), and -xtserial- had even greater F value, again very significant. Although this would mean a negative serial correlation, Durbin-Watson is not valid with a lagged dependent variable.

So my questions would be:
1. Can -xtregar- be used with a lagged dependent variable?
2. If it can be used, is the estimate of 'rho' correct or not?
3. If it cannot be used, what is the alternative (for FE)?

Ivan Tasic

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