st: RE: RESET with fixed effects

["Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>]

Bruno,

I would stick with my original suggestion in the Statalist post you are
pointing to, i.e., apply the within-transformation to the data and then
do a RESET test in the usual way.

One rationale is the one you are pointing to (which would apply for any
large-N asymptotics) - the estimated FEs are inconsistent.

The other is the interpretation I've just offered in response to your
other question.  The FE estimator is a kind of GLS estimator, and you're
working with GLS-transformed data.  If you're not sure about this
particular GLS transform (i.e., the within-transformation), though, you
could investigate that first.

HTH,
Mark

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Bruno Rocha
> Sent: 14 September 2011 17:32
> To: statalist
> Subject: st: RESET with fixed effects
> 
> Dear statalisters, hello,
> 
> I have implemented a panel FE model and I would like to 
> implement a RESET test to see if the linear specification of 
> the model is correct.
> However I don't know whether I should include the country and 
> year fixed effects in the fitted values computed from the 
> original equation. Here 
> http://www.stata.com/statalist/archive/2009-09/msg01236.html
> it is suggested that data should be demeaned and then perform 
> the test.
> 
> Would it be wrong to compute the squared fitted values using 
> the FE? A possible objection arises from the fact that the 
> coefficients of country dummies are in principle inconsistent 
> (as T is only 8 and N=27).
> 
> Many thanks for your attention,
> Best regards
> Bruno Rocha
> (Phd student -- University of Essex)
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