Dear Stata Users,
I am trying to implement a test for serial correlation in the
idiosyncratic errors in a fixed effects model.
I am following Wooldridge's (2002: 275) first test of this type.
I will follow his notation so that:
- u are the idiosyncratic errors of the FE model;
- ü are the time-demeaned errors
- û are the residuals of the time-demeaned variables regression
His description of the test is the following:
1) regress û on L1.û for T and T-1 (the last two periods)
2)) use the regression coefficient of L1.û (beta) and its standard
error (sigma) to obtain a sample estimate of delta= Corr(ü, L1.ü)
3) test h0: delta= -1/(T-1), where the t-statistic is asymptotically normal.
I face two problems.
First, what is the algebraic expression relating Corr(ü, L1.ü) to beta
and sigma?
Second, how can I formulate it using the command testnl?
Thanks in advance for your help.
Daniel
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