I am trying to calculate the effect of a region-specific variable
(regional unemployment rate) on individual, longitudinal survey data. I
have learned that region-specific correlated errors will bias downward
the estimated standard error of the coefficient on the region specific
explanatory variable (because correlated errors by region effectively
reduce the degrees of freedom in estimating the region-specific
variable's coefficient). I understood the answer to this problem to be a
regression of form
xtgls Y X1 X2 etc, panels(correlated)
Questions:
1) Any problems with the above reasoning?
2) Stata requires a balanced panel for the above command. Does anyone
know another way to attack this problem with an unbalanced panel?
Thanks in advance.
Andy Eggers
Brookings Institution
Washington, DC
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