st: RE: RE: RE: RE: hausman, augmented test from Vince's code and xtoverid after xtivreg

[ESTHER GOYA CARRILLO <egoya@ub.edu>]

Professor Mark,

Thanks again for your kind answer.

Regarding the two additional orthogonality conditions, I’m familiar with the first one, but I’m not sure about the second one... Are you referring to the exogeneity assumption that the instruments have to satisfy (i.e., the fact that instruments and errors are uncorrelated)? Because, as far as I know, this has to be satisfied by FE specification also, am I wrong? (I was thinking to use “xtoverid” to check the validity of the instruments, once I choose the correct specification).

In my case, I try to estimate a production function with innovation as explanatory variable. It’s widely accepted that there is simultaneity problems given the correlation between inputs and productivity shocks (that are capture by the error tem). So, OLS estimation would be inconsistent. For this reason, I want to use instrumental variable (using as instruments the lagged values of the endogenous variables). But, I don’t know which specification is more appropriate (FE or RE)… That is why I wanted to use Hausman (or other test, like Vince propose) in order to check if there is correlation between u_i and Xit, because if this was the case the RE spec would be inconsistent. But I faced with the problems I mentioned in the other mail…and I’m not sure what to do now.

So, I guess I wanted to test the first additional condition that you mentioned above. But now I don’t know if I have to test the second one also…

Many thanks for your help!
Esther

________________________________________
De: owner-statalist@hsphsun2.harvard.edu [owner-statalist@hsphsun2.harvard.edu] en nom de Schaffer, Mark E [M.E.Schaffer@hw.ac.uk]
Enviat el: dimecres, 1 / agost / 2012 18:33
Per a: statalist@hsphsun2.harvard.edu
Tema: st: RE: RE: RE: hausman, augmented test from Vince's code and xtoverid after xtivreg

Esther,

Can you clarify what your xtivreg RE vs. FE will test?  The RE specification probably has two kinds of additional orthogonality conditions that the FE spec doesn't use.

The first would be the additional orthogonality conditions that the RE estimator uses in the basic xtreg setting (no endogenous regressors), i.e., the assumption that the exogenous regressors are orthogonal to u_i (as well as to e_it, which the FE estimator also uses).

The second would be additional orthogonality conditions that the RE estimator uses that are associated with the excluded instruments.

Which do you want to test?

--Mark


> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-
> statalist@hsphsun2.harvard.edu] On Behalf Of ESTHER GOYA CARRILLO
> Sent: 31 July 2012 09:31
> To: statalist@hsphsun2.harvard.edu
> Subject: st: RE: RE: hausman, augmented test from Vince's code and xtoverid
> after xtivreg
>
> Professor Mark,
>
> Thanks a lot for your answer.
> Perhaps behaviour is consistent, but a little bit easy to misunderstand.
> However, as you mentioned, help file is very useful.
>
> Then, how do I compare FE vs RE after "xtivreg" if chi-square in Hausman test
> is negative or it has a "V_b- V_B not positive defined"?
> Should I follow [R] hausman (in favour of RE) or Vince's code (in favour of FE)
> is more appropriate?
>
> Thanks again,
> Esther
>
> ________________________________________
> De: owner-statalist@hsphsun2.harvard.edu [owner-
> statalist@hsphsun2.harvard.edu] en nom de Schaffer, Mark E
> [M.E.Schaffer@hw.ac.uk] Enviat el: dimarts, 31 / juliol / 2012 00:24 Per a:
> statalist@hsphsun2.harvard.edu
> Tema: st: RE: hausman, augmented test from Vince's code and xtoverid after
> xtivreg
>
> Esther,
>
> After xtivreg RE or FE estimation, and after xtivreg2 FE estimation, xtoverid
> reports an overid statistic relating to the endogenous variables being
> instrumented.  It isn't reporting an FE vs. RE test.
>
> After xtreg RE estimation, xtoverid reports a Hausman or Hausman-type test
> of FE vs. RE.  This can be interpreted as a kind of overidentification test
> relating to the (exogenous) regressors, as the help file explains.
>
> I agree, this behaviour by xtoverid is not entirely consistent....
>
> HTH,
> Mark (xtoverid author)
>
>
> From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-
> statalist@hsphsun2.harvard.edu] On Behalf Of ESTHER GOYA CARRILLO
> Sent: 30 July 2012 11:41
> To: statalist@hsphsun2.harvard.edu
> Subject: st: hausman, augmented test from Vince's code and xtoverid after
> xtivreg
>
> Hi everyone,
>
> I am a PhD student working on my thesis now. I am struggling with a
> "dilemma" and I really appreciate if someone could help me.
> I am estimating a FE and RE model with Instrumental variable using panel
> data. So, I use xtivreg, fe and xtivreg, re commands. I want to compare both
> models and choose the correct one. Hi have two questions:
>
> 1) If I use "hausman" chi-square is negative. Then, and according to the [R]
> hausman, "we might interpret this as strong evidence that we cannot reject
> the null hypothesis". So, following this interpretation, I should work with RE
> (due to that we can assume that the regressors are uncorrelated with the
> group specific error (ui)).
>
> On the other hand, I have read Vince's post about hausman test
> (http://www.stata.com/statalist/archive/2005-08/msg00760.html). I have
> applied his code (many thanks!) to compare FE vs RE after xtivreg (I guess I
> can used this code, not only for xtreg but also for xtivreg). The results are
> below. P-value=0, so I reject the null hypothesis. Thus FE are preferred, is
> this correct?
>
> Then, my first question is: which is the correct option?
>
>
> 2) I also consider "xtoverid" option. I have read Professor Mark's post
> (http://www.stata.com/statalist/archive/2007-11/msg00721.html) and the
> online help for "xtoverid" command. Regarding to the post, Professor Mark
> said "the Sargan-Hansen statistic reported by xtoverid after xtivreg or xtreg
> is, in fact, an FE vs RE test". However, in the online help is written "A test for
> fixed vs. random effects is also a test of overidentifying restrictions, and
> xtoverid will report this after a standard panel data estimation with xtreg,
> re". But, here is not consider "xtivreg" case...
>
> In order to check it, I use "xtoverid" after "xtreg, re" and the output of stata
> is in fact a FE vs RE test (results below). But I use "xtoverid" after "xtivreg, re"
> and output of stata does not suggest that it is a FE vs RE test like in the
> previous case...  Moreover, p-value = 0.4112, so I cannot reject the null
> hypothesis. If this was a FE vs RE test, the conclusion would be that RE model
> is preferred (it is consistent and more efficient than FE). This is opposite to
> the result obtained from Vince's code...
> Besides, I can perform "xtoverid" after "xtivreg, FE" (results below). In this
> case, p-value=0.3488... And I don't know how to interpret this result...which
> is the null hypothesis here?
>
> So, my second question is: can I use "xtoverid" after xtivreg to do an FE vs RE
> test? If the answer is yes, with which option: xtivreg, RE or xtivreg, FE?
>
>
> Given all of these, I don't know if it's better use Vince's code or hausman test
> or "xtoverid"....after my "xtivreg" estimation, because the conclusions are
> completely different...
>
> I would be really grateful if someone could help me in any of these
> questions.
> Many thanks in advance,
> Esther
>
> **** RESULTS  FROM VINCE'S CODE ****
> . test
>
> ( 1) = 0
> ( 2)  mean2 - diff2 = 0
> ( 3)  mean3 - diff3 = 0
> ( 4)  mean4 - diff4 = 0
> ( 5)  mean5 - diff5 = 0
>        Constraint 1 dropped
>
>            chi2(  4) =  553.93
>          Prob > chi2 =    0.0000
>
> **** RESULTS  FROM XTOVERID  WITH XTREG **** . quietly xtreg lny_l
> medium large grupo intra1 inter1_p lnRDs_l lnCFs_l, re . xtoverid, robust
>
> Test of overidentifying restrictions: fixed vs random effects Cross-section
> time-series model: xtreg re  robust
> Sargan-Hansen statistic 1260.567  Chi-sq(7)   P-value = 0.0000
>
> **** RESULTS  FROM XTOVERID  WITH XTIVREG ****
> * xtoverid after xtivreg, re:
> . quietly xtivreg lny_l medium large grupo intra1 inter1_p (lnRDs_l lnCFs_l=
> lag1RD lag2RD lag1CF lag2CF), re . xtoverid, robust
>
> Test of overidentifying restrictions:
> Cross-section time-series model: xtivreg g2sls  robust
> Sargan-Hansen statistic   1.777  Chi-sq(2)    P-value = 0.4112
>
> * xtoverid after xtivreg, fe:
> . quietly xtivreg lny_l medium large grupo intra1 inter1_p (lnRDs_l lnCFs_l=
> lag1RD lag2RD lag1CF lag2CF), fe . xtoverid, robust
>
> Test of overidentifying restrictions:
> Cross-section time-series model: xtivreg fe  robust
> Sargan-Hansen statistic   2.107  Chi-sq(2)    P-value = 0.3488
>
>
> Aquest correu electrònic i els annexos poden contenir informació
> confidencial o protegida legalment i està adreçat exclusivament a la persona
> o entitat destinatària. Si no sou el destinatari final o la persona encarregada
> de rebre'l, no esteu autoritzat a llegir-lo, retenir-lo, modificar-lo, distribuir-lo,
> copiar-lo ni a revelar-ne el contingut. Si heu rebut aquest correu electrònic
> per error, us preguem que n'informeu al remitent i que elimineu del sistema
> el missatge i el material annex que pugui contenir. Gràcies per la vostra
> col·laboració.
>
> Este correo electrónico y sus anexos pueden contener información
> confidencial o legalmente protegida y está exclusivamente dirigido a la
> persona o entidad destinataria. Si usted no es el destinatario final o la
> persona encargada de recibirlo, no está autorizado a leerlo, retenerlo,
> modificarlo, distribuirlo, copiarlo ni a revelar su contenido. Si ha recibido este
> mensaje electrónico por error, le rogamos que informe al remitente y
> elimine del sistema el mensaje y el material anexo que pueda contener.
> Gracias por su colaboración.
>
> This email message and any documents attached to it may contain
> confidential or legally protected material and are intended solely for the use
> of the individual or organization to whom they are addressed. We remind
> you that if you are not the intended recipient of this email message or the
> person responsible for processing it, then you are not authorized to read,
> save, modify, send, copy or disclose any of its contents. If you have received
> this email message by mistake, we kindly ask you to inform the sender of this
> and to eliminate both the message and any attachments it carries from your
> account. Thank you for your collaboration.
>
>
> --
> Heriot-Watt University is the Sunday Times Scottish University of the Year
> 2011-2012
>
> We invite research leaders and ambitious early career researchers to join us
> in leading and driving research in key inter-disciplinary themes.
> Please see www.hw.ac.uk/researchleaders for further information and how
> to apply.
>
> Heriot-Watt University is a Scottish charity registered under charity number
> SC000278.
>
>
> *
> *   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/
>
> *
> *   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/


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

We invite research leaders and ambitious early career researchers to
join us in leading and driving research in key inter-disciplinary themes.
Please see www.hw.ac.uk/researchleaders for further information and how
to apply.

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


*
*   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/


Aquest correu electrònic i els annexos poden contenir informació confidencial o protegida legalment i està adreçat exclusivament a la persona o entitat destinatària. Si no sou el destinatari final o la persona encarregada de rebre’l, no esteu autoritzat a llegir-lo, retenir-lo, modificar-lo, distribuir-lo, copiar-lo ni a revelar-ne el contingut. Si heu rebut aquest correu electrònic per error, us preguem que n’informeu al remitent i que elimineu del sistema el missatge i el material annex que pugui contenir. Gràcies per la vostra col·laboració.

Este correo electrónico y sus anexos pueden contener información confidencial o legalmente protegida y está exclusivamente dirigido a la persona o entidad destinataria. Si usted no es el destinatario final o la persona encargada de recibirlo, no está autorizado a leerlo, retenerlo, modificarlo, distribuirlo, copiarlo ni a revelar su contenido. Si ha recibido este mensaje electrónico por error, le rogamos que informe al remitente y elimine del sistema el mensaje y el material anexo que pueda contener. Gracias por su colaboración.

This email message and any documents attached to it may contain confidential or legally protected material and are intended solely for the use of the individual or organization to whom they are addressed. We remind you that if you are not the intended recipient of this email message or the person responsible for processing it, then you are not authorized to read, save, modify, send, copy or disclose any of its contents. If you have received this email message by mistake, we kindly ask you to inform the sender of this and to eliminate both the message and any attachments it carries from your account. Thank you for your collaboration.

*
*   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/