st: RE: RE: xtivreg2

["Ikuho Kochi" <ikuho.kochi@uacj.mx>]

Mark,

Thank you very much for your thoughtful answer for my question.  It makes sense to me, but your answer brought another question to me. 

In the same logic, if I understand correctly, the first differences model also should not include 
constant term as all constant values will be canceled when differenced over time.  
In the stata manual, the formulation of "xtivreg, fd" seems to drop the constant term, but when 
I run the model with "xtivreg, fd" on STATA, I get estimated results with the constant term and this 
command does not allow me to drop constant term as an option.  "xtivreg2, fd" seems to function in the same way (estimate the constant term as default), and I wonder why it is programmed that way.  

I appreciate if you could help me to clarify my confusion. 

Ikuho

________________________________________
From: owner-statalist@hsphsun2.harvard.edu [owner-statalist@hsphsun2.harvard.edu] on behalf of Schaffer, Mark E [M.E.Schaffer@hw.ac.uk]
Sent: Monday, July 02, 2012 5:37 PM
To: statalist@hsphsun2.harvard.edu
Subject: st: RE: xtivreg2

Ikuho,

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Ikuho Kochi
> Sent: 02 July 2012 21:58
> To: statalist@hsphsun2.harvard.edu
> Subject: st: xtivreg2
>
> Dear fellow econometricians/statisticians
>
> I have a question regarding the "xtivreg2" command and would
> appreciate very much if somebody can help me to clarify some issues.
>
> Since I have to estimate HAC fixed models, I am using the
> xtivreg2 command.
> However, the xtivreg2 command does not estimate a constant
> term in the fixed effect model (as described in the command
> description), and I am wondering why it is programmed in this
> way.  My understanding is that the fixed effect model usually
> includes a constant term

Actually, that's not the case.  Strictly speaking, a fixed effects model
cannot provide an estimate of the constant term.  The reason is that a
"pure" fixed effects model uses *only* within variation to obtain
estimates of the coefficients.  It can't provide estimates of
coefficients on anything that does not vary within panels, and that
includes the constant term.

> (when I run the same model with
> xtivreg command, the constant term appears, so it is not the
> data problem),

This is because official -xtivreg-, and for that matter official
-xtreg-, use cross-sectional variation to obtain estimates of the
constant term.  Rather than go into the gory details, I'll just say
"it's in the manual".  Which it is.

Personally, I always found it odd that these commands will report an
estimated constant term that relies on cross-sectional variation even
when the -fe- option is specified.  This is non-standard in econometrics
(my home territory), but maybe it's standard in other areas - I don't
know.  But I'm the author of -xtivreg2-, and I programmed it to behave
more in accord with the conventions in my own field of work.

HTH,
Mark

> or am I missing something?  I wonder if the
> user of this command is expected to include an extra variable
> with constant values in the fixed effect model so that the
> constant term will be estimated in fixed model estimation?
>
> I appreciate for your time and input...
>
> Ikuho Kochi
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