st: Re: RE: Fixed-effects, unbalanced panel and time-invariant variable

["Rodrigo A. Alfaro" <ralfaro76@hotmail.com>]

Dear Mark,

RE estimation is more restrictive than the current FE+BE. For RE we need 
that time variant (TV) and time invariant (TI) variables have to be 
uncorrelated with the cross sectional unobservable (u_i)), if the assumption 
if false the TV and TI estimates are inconsistent. But for this procedure 
(FE+BE) only TI estimates will be inconsistent (Hsiao 2003, page 52-53). Of 
course under not correlation RE is more efficient. The following example 
show you the 3 methods: FE+BE, RE and LS.

In T1 we have the xtfevd output, T2+T3 the FE+BE without any adjustment (the 
constant is added to T3 therefore the constant in T2 is irrelevant). T4 is 
GLS RE, T5 is the LS and T6 is MLE RE. It seems that std errors fot TI in T1 
are too much small in compare with other methods, maybe there is a typo in 
the ado-file. T2+T3 give us a more reliable result that we can compare with 
T4, T5 and T6. Look fem estimate (gender dummy), GLS RE is similar to LS 
even that 75% of the total variance is explained by u_i. For T6 the results 
are close to FE in the case of coef but very different in the std error of 
TI... any idea?

Best, Rodrigo.


/******************** Example **************************************/
qui {
webuse psidextract
tsset id t
xtfevd lwage wks south smsa ms exp exp2 occ ind union fem blk ed, 
invariant(fem blk ed)
est store T1
xtreg lwage wks south smsa ms exp exp2 occ ind union, fe
est store T2
predict aux1, r
bysort id: egen aux2=mean(aux1)
replace aux2=aux2+_b[_cons]
reg aux2 fem blk ed
est store T3
xtreg lwage wks south smsa ms exp exp2 occ ind union fem blk ed, re
est store T4
reg lwage wks south smsa ms exp exp2 occ ind union fem blk ed, re
est store T5
xtreg lwage wks south smsa ms exp exp2 occ ind union fem blk ed, mle
est store T6
}
est table T*, se
/******************** Example **************************************/

----- Original Message ----- 
From: "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>
To: <statalist@hsphsun2.harvard.edu>
Sent: Tuesday, October 17, 2006 11:12 AM
Subject: st: RE: Fixed-effects, unbalanced panel and time-invariant variable


Barbara,

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of
> PETITT Barbara
> Sent: 17 October 2006 14:47
> To: statalist@hsphsun2.harvard.edu
> Subject: st: Fixed-effects, unbalanced panel and
> time-invariant variable
>
> Hello,
>
> I have an unbalanced panel (for some firms, I have three
> years of data, for others, two years or even only one year).
> One of my independent variables is a time-invariant variable
> and with fixed-effects models, its gets dropped. I
> contemplated using the fixed effects vector decomposition
> (xtfevd), but does it work for unbalanced panel?
> Otherwise, is there any alternative?

Maybe I am missing something obvious, but why won't the standard random
effects estimator work for you?  -xtreg,re- etc.

--Mark

Prof. Mark Schaffer
Director, CERT
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS
tel +44-131-451-3494 / fax +44-131-451-3296
email: m.e.schaffer@hw.ac.uk
web: http://www.sml.hw.ac.uk/ecomes


> Thank you.
>
> Barbara.
>
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