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st: Robust version of the Hausman test... contradicting results


From   Mari Mari <mari4i@yahoo.com>
To   statalist@hsphsun2.harvard.edu
Subject   st: Robust version of the Hausman test... contradicting results
Date   Tue, 12 Jul 2011 13:48:27 +0100 (BST)

Dear Statalist,

I am deciding whether to use a FE or RE model, based on the results of a robust 
version of the Hausman test. I am using Stata 11. Here is what I did for my 
balanced panel.

* Robust version of the Hausman test (Wooldridge 2002)
quietly xtreg y x1 x2 x3 x4, re
by id: gen T=_N
gen theta=1-sqrt(e(sigma_e)^2/(e(sigma_e)^2+ T*e(sigma_u)^2))
foreach x in y x1 x2 x3 x4 {
    by id: egen mean`x' = mean(`x')
        generate md`x' = `x' - mean`x'
        generate red`x' = `x' - theta*mean`x'
}
quietly reg  redy  redx1 redx2 redx3 redx4  mdx1 mdx2 mdx3 mdx4, vce(cluster id)
test mdx1 mdx2 mdx3 mdx4
 ( 1)  mdx1 = 0
 ( 2)  mdx2 =  0
 ( 3)  mdx3 = 0
 ( 4)  mdx4 = 0
       F(  4,    25) =   11.72
            Prob > F =    0.0000 

This suggests I should use FE

_________________________________________________________________________

* Robust version of the Hausman test (Schaffer and Stillman, 2006)
quietly xtreg y x1 x2 x3 x4, re cluster(id)
xtoverid
Sargan-Hansen statistic   5.885  Chi-sq(4)    P-value = 0.2079  

This suggests I should use RE


Given the tests are providing opposite results, do you have any suggestion on 
how to proceed?

Thanks!

Maria


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