Re: st: Fixed Effects GLS

["Andrea Morescalchi" <morescalchi@ec.unipi.it>]

Thank you vey much Mark. I will look into this 
interpretation of FE, which I didn't know.

But, regardless of the definition, I still do not 
understand how to tell Stata to estimate what in the 10 
Chapter of Wooldridge (2002) is called FEGLS. Basically, I 
would like to estimate in Stata a FE where the (T-1)*(T-1) 
covariance matrix of the error component is not an 
identity matrix (multiplicated for sigma) but it is 
estimated in a first stage.

Thanks
Andrea

On Tue, 12 Apr 2011 11:28:47 +0100
 "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk> wrote:
> Andrea,
>
> > -----Original Message-----
> > From: owner-statalist@hsphsun2.harvard.edu 
> > [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf 
> > Of 
> > Andrea Morescalchi
> > Sent: Tuesday, April 12, 2011 9:57 AM
> > To: statalist@hsphsun2.harvard.edu
> > Subject: Re: st: Fixed Effects GLS
> >
> > Dear Ada and Maysa,
> > I was trying too to estimate the FEGLS as presented in 
> > Wooldridge (2002), but with only one error component.
> >
> > Anyway, I cannot understand properly the first line of 
> > Ada's response: "Fixed Effects model is a kind of GLS 
> > model. Use the basic FE commands and you will be fine."
> > I red carefully the Chapter 10 in Wooldridge, but I 
> > cannot 
> > see among the - xtreg, FE - options available which is 
> > that for doing FEGLS. In particular, the options 
> > available 
> > for vce are: conventional, robust, cluster, bootstrap, 
> > or 
> > jackknife.
> > FEGLS implies a particular structure for the (T-1)*(T-1) 
> > covariance matrix for the errors, i.e. the matrix is 
> > estimated after a standard FE in the first step where 
> > this 
> > matrix is an identity matrix multiplicated for the 
> > T-constant variance parameter.
> > Among FE Stata options the most proper to do FEGLS would 
> > seem: "vce(conventional), the default, uses the 
> > conventionally derived variance estimator for 
> > generalized 
> > least squares regression". This line is a bit strange to 
> > me since it seems to imply that the standard FE Stata 
> > regression is actually a FEGLS!
>
> It is indeed, and not just in Stata.  The FE estimator 
> is, by
> definition, a GLS estimator.
>
> I am sure this is discussed in Jeff Wooldridge's book 
> somewhere (there's
> a 2010 edition out, by the way), but I don't have it 
> handy and can't
> direct you to the right chapter/page.  Another place you 
> might look is
> Arellano's 2003 book, "Panel Data Econometrics".  In 
> chapter 2 (I think)
> he shows that the FE estimator is the GLS estimator 
> obtained after
> applying the first-differencing transformation.
>
> --Mark
>
> > I computed the FE and the 
> > FEGLS separately in Matlab and it turns out that the 
> > "conventional" Stata FE is identical to that with error 
> > v-c matrix equal to an identity matrix (multiplicated 
> > for 
> > sigma_u). But which is the option which tells Stata to 
> > estimate the v-c matrix in the first step?
> >
> > Thanks in advance
> > Andrea
> >
> > On Tue, 12 Apr 2011 00:09:11 +0000
> >   "Ada Ma" <heu034@googlemail.com> wrote:
> > >Fixed Effects model is a kind of GLS model. Use the 
> > basic 
> > >FE commands and you will be fine. 
> > > 
> > > There are user written commands for two way FEs but I 
> > >can't remember the commands' names, sorry! There are 
> > two 
> > >of them and they r both featured in the Stata Journal, 
> > >one of the authors for one command is Upward. HTH.
> > > 
> > > 
> > > Sent using BlackBerry(r)
> > > 
> > > -----Original Message-----
> > >From: May Ster <mayfrank@gmail.com>
> > > Sender: owner-statalist@hsphsun2.harvard.edu
> > > Date: Mon, 11 Apr 2011 23:10:06 
> > > To: <statalist@hsphsun2.harvard.edu>
> > > Reply-To: statalist@hsphsun2.harvard.eduSubject: st: 
> > >Fixed Effects GLS
> > > 
> > > Dear Statalist,
> > > 
> > > I tried reading Woolridge (2002), Chapter 10 after he 
> > >mentioned
> > > choosing between Random effects model and Fixed 
> > effects 
> > >model, he does
> > > mentioned 'Fixed Effects GLS".
> > > 
> > > I'm not sure how does this apply to STATA command if i 
> > >want to use
> > > 'Fixed Effects GLS".
> > > 
> > > If my model is a two-way fixed effects model, 
> > Basically, 
> > >is the 'Fixed
> > > Effects GLS" can be written like this (i've checked 
> > for 
> > >serial
> > > correlation in error terms) ;
> > > 
> > > xi: xtgls var1 var2 var3 i.year , panel(hetero) 
> > >corr(psar1)
> > > 
> > > 
> > > Please help.
> > > 
> > > Thank you very much in advance
> > > 
> > > Maysa
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