Philippe,
Subject: constant terms in -xtivreg-?
Date sent: Wed, 16 Nov 2005 17:00:25 +0100
From: "philippe van kerm" <[email protected]>
To: <[email protected]>
> Dear Mark,
>
> I'm playing about with your -xtivreg2- command. It looks very useful!
>
> But I have come across a, seemingly silly, question: why is there, by
> default, a constant term when using first-differences?
It was basically because that way, -xtivreg2- mimics Stata's official
-xtivreg-.
> I have only
> tried the command with no instrumental variables, that is, just as a
> way to compute the first-difference model. In this case, I have the
> *impression* that adding a constant biases the coefficients (though I
> might be completely wrong!). I fact I observe large differences
> between the FE and the FD coefficients in my test data, but the
> coefficients become much closer when adding the -noconstant- with the
> -fd- model. I'm pretty sure I miss something obvious, but can't figure
> out what?
>
> Is it simply that, to estimate the simple FD model, -noconstant- is
> *required*?
Exactly! The constant term in the FD model is just a simple linear
trend. If you had a variable t in the raw data, then the FD of t is
just t-(t-1) = 1. -nocons- implies no trend.
> (In this case, maybe a line in the help file would be
> useful?) Does it also hold if you specify instruments?
Yes (and yes).
> A related question is whether you know of a trick in the FD model to
> recover an estimate for the constant term (other than taking the mean
> of the residuals in the back-transformed model); that is stg akin to
> adding the grand mean back in the "within transformation" as is
> implemented in the FE model with -xtreg-?
This doesn't ring a bell. Maybe someone else on Statalist knows the
answer to this one...?
--Mark
>
> Hope you are doing well,
>
>
> Best wishes
>
>
> Philippe
>
>
>
>
>
> <<<>>><<<>>><<<>>><<<>>><<<>>><<<>>><<<>>><<<>>>
> Dr. Philippe Van Kerm
> IRISS - Integrated Research Infrastructure in
> the Socio-Economic Sciences
> CEPS/INSTEAD
> BP48, L-4501 Differdange, Luxembourg
> >> http://www.ceps.lu/iriss <<
> >> http://econpapers.repec.org/RAS/pva19.htm <<
> <<<>>><<<>>><<<>>><<<>>><<<>>><<<>>><<<>>><<<>>>
>
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Prof. Mark E. Schaffer
Director
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Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS UK
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