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Re: st: Serial Correlation


From   Syed Basher <syed.basher@yahoo.com>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: Serial Correlation
Date   Fri, 4 Feb 2011 10:05:53 -0800 (PST)

Hi Robert,

If you're going to stick with fixed-effects regression, you best option in Stata 
is:

. xtreg y x, fe robust(id)

which will produce Rogers (1993) heteroscedasticity and autocorrelation 
consistent SEs. 


Since your N<T, you can also try xtgls. For simplicity you can use dummy 
variable regression technique to estimate fixed-effects. You may find the 
following useful:
http://www.stata-journal.com/sjpdf.html?articlenum=st0084

Best,
Syed Basher

 http://www.syedbasher.org/



----- Original Message ----
From: Robert Mills <R.Mills@sms.ed.ac.uk>
To: statalist@hsphsun2.harvard.edu
Sent: Fri, February 4, 2011 6:46:39 PM
Subject: st: Serial Correlation

Hi all,

I'm performing a panel data regression across six countries and ten years in 
Stata.

I'm a little confused as to which methodology I should use, so far I have:

Run my regression in OLS, then used the Breush-Pagan Lagrange Multiplier Test, 
which rejected the null hypothesis that the variance of errors is zero 
(homoskedastic), thus OLS is inconsistent so I need to use Random or Fixed 
Effects

I've used a Hausman Test in which determined Random effects to be inconsistent, 
so I'm going to use Fixed Effects.

So my errors are heteroskedastic, and I need to correct for this - do I simply 
use robust standard errors in Stata? Or should I use the Huber-White Standard 
Errors? Or are these the same thing?

I've read that using Huber-White Standard Errors requires no serial correlation 
in error terms. To check for this, I need to perform a Durbin-Watson Test, and 
if I find serial correlation, use Prais-Winsten (GLS) to correct this.

However, can you use GLS for fixed effects? And if so, how do you do this in 
Stata?

Or, should I use Newey West Standard Errors, which correct for both 
heteroskedasticity and for serial correlation (AR 1). This would seem like the 
best option, but I'm not sure if you can use NW SE's for fixed effects? If so, 
how is this done in stata?

Thanks in advance for any help you may have!

Cheers,

Robert Mills



--The University of Edinburgh is a charitable body, registered in
Scotland, with registration number SC005336.



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