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From |
"Biljana Dlab" <[email protected]> |

To |
<[email protected]> |

Subject |
st: RE: re: 3sls and fixed effects |

Date |
Sat, 16 Oct 2010 20:31:21 +0200 |

```
Hi Kit,
The size is following:
Number of unique values of gvkey_n is 615
Number of records is 6492
I have totally 6492 firm-year observations.
The time period is 30 years (fyears)
That gives me matrix of:
2*((G-1) + (T-1))
2*(614+29)=1286
Is that too large?
Thank you for your patience.
Best,
Biljana
-----Original Message-----
From: [email protected]
[mailto:[email protected]] On Behalf Of Christopher
Baum
Sent: 16 October 2010 19:53
To: [email protected]
Subject: st: re: 3sls and fixed effects
<>
Biljana said
I have some lagged values in regression - could that be the problem?
This is what I have & get:
. xi: reg3 (DeltaDebt CashFlow dQ size DeltaCashHold debt_lag1 i.gvkey_n
i.fyear) (DeltaCashHold CashFlow dQ size DeltaDebt cashhold_lag2
i.gvkey_n i.fyear), endog(DeltaDebt DeltaCashHold)
i.gvkey_n _Igvkey_n_1017-103307(naturally coded; _Igvkey_n_1017
omitted)
i.fyear _Ifyear_1971-2001 (naturally coded; _Ifyear_1971
omitted)
1st stage failure.
Equation: DeltaDebt CashFlow dQ size debt_lag1 _Igvkey_n_1056
_Igvkey_n_1058 _Igvkey_n_1093 _Igvkey_n_1124 _Igvkey_n_1234
_Igvkey_n_1248 _Igvkey_n_1283 _Igvkey_n_1284 _Igvkey_n_1327
_Igvkey_n_1350 _I
Stata doesn't know that those are lagged variables, so that can't be a
problem. I think what you may be running into is a constraint arising
because of the number of regressors. How many values of gvkey_n are
there in the estimation sample? (You can use -levelsof- to get a list,
and an extended macro function to count the number). If you are
estimating two equations, each with a full set of firm and time dummies,
the covariance matrix is of the order 2*((G-1) + (T-1)) where G=number
of firms and T=number of periods. if the number of firms is large, you
may be running up against a matsize constraint (I've never seen the
error message '1st stage failure').
As you do not have a dynamic system, you could manually demean each of
the variables via the within transformation and run the regression on
the within-transformed variables. I believe Ben Jann's -center- on SSC
will do the centering transformation under by-group control (by
gvkey_n), which would be cleaner than using egen, mean() with by.
Kit
Kit Baum | Boston College Economics & DIW Berlin |
http://ideas.repec.org/e/pba1.html
An Introduction to Stata Programming |
http://www.stata-press.com/books/isp.html
An Introduction to Modern Econometrics Using Stata |
http://www.stata-press.com/books/imeus.html
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```

**References**:**st: re: 3sls and fixed effects***From:*Christopher Baum <[email protected]>

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