st: RE: Error? xtdpdsys assigns explanatory power to fixed effects

[gsanchez@stata.com]

Lara <larasusannakrugman@gmail.com> included a dummy for a panel variable
(time invariant variable) in her dynamic panel estimation using -xtabond-
and -xtdpdsys-. The first command omits the dummy (because of collinearity)
but the second produces a coefficient estimate for that variable. Lara
states that:

> According to the idea of the estimator it should obviously not do this as 
> observation entity specific fixed effects are an integral part of the
estimator.
> To make this point clear I have this example using Stata data:
>
>      use http://www.stata-press.com/data/r11/abdata
>      gen seven=0
>      replace seven=1 if id==7
>      xtset id year
>
>      xtabond n L(0/2).(w k) yr1980-yr1984 year seven, vce(robust) 
>      xtdpdsys n L(0/2).(w k) yr1980-yr1984 year seven, vce(robust)

> xtabond is doing what it should do and omits the entity specific 'seven'
> xtdpdsys estimates some coefficient it shouldn't.

Then, Lara asks:

> Is this already a known problem? Or isn't it a problem at all?


Both commands are handling the dummy variable properly. 

- Time invariant variables must be omitted from the Arellano/Bond estimation
(with -xtabond-) because the model is fitted in first differences and,
therefore, the fixed effects are removed from the estimation. In fact, the
output for -xtabond- includes a note stating that 'seven' (the
time-invariant variable in Lara's code) is omitted because of collinearity. 

- On the other hand, the Blundell-Bond/Arellano-Bover is a system estimator
(implemented by -xtdpdsys-) with one equation in levels and one equation in
first differences. Time invariant regressors are omitted for the equation in
first differences (as expected) but they are still present in the equation
in levels. Thus, getting coefficient estimates for time invariant regressors
is correct in this second case. Notice that the output for the dynamic
regression with -xtdpdsys- also indicates that 'seven' is (only) omitted for
the difference equation. 


--Gustavo
gsanchez@stata.com


*
*   For searches and help try:
*   http://www.stata.com/help.cgi?search
*   http://www.stata.com/support/statalist/faq
*   http://www.ats.ucla.edu/stat/stata/