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From |
Lara K <larasusannakrugman@gmail.com> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
Re: st: RE: Error? xtdpdsys assigns explanatory power to fixed effects |

Date |
Thu, 10 Nov 2011 00:39:55 +0100 |

Gustavo your reply is really helpful! Thank you so much!! I have another question nevertheless. In my application - in a year-country panel data set - I estimate the effects of a certain variable W on the dependent variable Y. I know that the effect is different depending on the type of country. Therefore I created dummies for mutually exclusive groups of countries (a & b). Now I interact the variable W with these dummies (W*a, W*b) to estimate the effect of W with regard to the type of country. By estimating subsamples (a==1 or b==1) I know that W has a positive effect for a-countries but a negative effect for b-countries. If I estimate the whole sample using XTDPDSYS and including the interaction terms W*a and W*b I falsely obtain positive coefficients for both. (If I use XTABOND I find a positive and a negative coefficient as expected.) Is this a regression that cannot be done using XTDPDSYS as it estimates explanatory power for the 'zeros' in (W*a) for the b-countries?? Thank you very much for your helpful explanation! I hope I formulated the question clear enough for you to understand. A variation of my first small example using stata data would be: clear use http://www.stata-press.com/data/r11/abdata gen a=0 replace a=1 if id <= 7 gen aW= a * w gen b=0 replace b =1 if id > 7 gen bW=b * w xtset id year xtabond n L(0/2).(aW bW k) yr1980-yr1984 year, vce(robust) xtdpdsys n L(0/2).(aW bW k) yr1980-yr1984 year, vce(robust) (This is not working as a very good example because the subsamples a and b are not very different from each other.) On 09.11.2011, at 18:26, gsanchez@stata.com wrote: > Lara <larasusannakrugman@gmail.com> included a dummy for a panel variable > (time invariant variable) in her dynamic panel estimation using -xtabond- > and -xtdpdsys-. The first command omits the dummy (because of collinearity) > but the second produces a coefficient estimate for that variable. Lara > states that: > >> According to the idea of the estimator it should obviously not do this as >> observation entity specific fixed effects are an integral part of the > estimator. >> To make this point clear I have this example using Stata data: >> >> use http://www.stata-press.com/data/r11/abdata >> gen seven=0 >> replace seven=1 if id==7 >> xtset id year >> >> xtabond n L(0/2).(w k) yr1980-yr1984 year seven, vce(robust) >> xtdpdsys n L(0/2).(w k) yr1980-yr1984 year seven, vce(robust) > >> xtabond is doing what it should do and omits the entity specific 'seven' >> xtdpdsys estimates some coefficient it shouldn't. > > Then, Lara asks: > >> Is this already a known problem? Or isn't it a problem at all? > > > Both commands are handling the dummy variable properly. > > - Time invariant variables must be omitted from the Arellano/Bond estimation > (with -xtabond-) because the model is fitted in first differences and, > therefore, the fixed effects are removed from the estimation. In fact, the > output for -xtabond- includes a note stating that 'seven' (the > time-invariant variable in Lara's code) is omitted because of collinearity. > > - On the other hand, the Blundell-Bond/Arellano-Bover is a system estimator > (implemented by -xtdpdsys-) with one equation in levels and one equation in > first differences. Time invariant regressors are omitted for the equation in > first differences (as expected) but they are still present in the equation > in levels. Thus, getting coefficient estimates for time invariant regressors > is correct in this second case. Notice that the output for the dynamic > regression with -xtdpdsys- also indicates that 'seven' is (only) omitted for > the difference equation. > > > --Gustavo > gsanchez@stata.com > > > * > * For searches and help try: > * http://www.stata.com/help.cgi?search > * http://www.stata.com/support/statalist/faq > * http://www.ats.ucla.edu/stat/stata/ * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**RE: st: RE: Error? xtdpdsys assigns explanatory power to fixed effects***From:*"Gustavo Sanchez" <gsanchez@stata.com>

**References**:**st: Error? xtdpdsys assigns explanatory power to fixed effects***From:*Lara K <larasusannakrugman@gmail.com>

**st: RE: Error? xtdpdsys assigns explanatory power to fixed effects***From:*gsanchez@stata.com

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