st: RE: RE: RE: xtivreg2

["Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>]

Ikuho,

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Ikuho Kochi
> Sent: 03 July 2012 17:35
> To: statalist@hsphsun2.harvard.edu
> Subject: st: RE: RE: xtivreg2
> 
> 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.

Because in the FD model, the constant term is an estimate of the trend.
FD with nocons estimates the same model as FE.

--Mark

> 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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> >
> 
> 
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-- 
Heriot-Watt University is the Sunday Times
Scottish University of the Year 2011-2012

Heriot-Watt University is a Scottish charity
registered under charity number SC000278.


*
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