st: RE: OLS equivalence for unbalanced panel

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

Silviya,

This can happen in finite samples with the 2-step RE estimator.  You can try using different methods for estimating the variance components - either the -sa- option (which uses the Swamy-Aurora method) or the -mle- option - to see if it makes a difference.

HTH,
Mark

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-
> statalist@hsphsun2.harvard.edu] On Behalf Of Silviya Nikolova
> Sent: 04 July 2013 18:10
> To: statalist@hsphsun2.harvard.edu
> Subject: st: OLS equivalence for unbalanced panel
> 
> Dear Statalist,
> 
> I am estimating RE model (xtreg) using unbalanced panel dataset. Sigma_u for
> some reason is 0. My dependent variable is discrete with large variation. To
> understand why this is the case, I tried:
> 1. Add some iid normal noise to the data
> 2. Drop groups with small number of observations in them
> These two approaches do not make a difference.
> 3. Reduce the number of variables (after sufficient number of dropped
> variables sigma_u became > 0).
> 4. Expand the data using --expand 2-- command. This generates non-zero
> sigma_u as well.
> Is there any reasonable explanation for all 4 of these? 2 and 3 in isolation can
> be explained easily.
> 
> This is a snippet of the output before expand:
> 
> . xtreg q2_OHS ISTC q1_OHS ${q1_eq5d_elem_nf} q1_eq5d_health_scale
> ${other_health_nf} ${comorbs_nf} ${pa
> > tients_nf_`severity'} ${provider_nf}, re
> 
> Random-effects GLS regression                   Number of obs      =     36090
> Group variable: procode1                        Number of groups   =       246
> 
> R-sq:  within  = 0.2200                         Obs per group: min =         1
>        between = 0.6405                                        avg =     146.7
>        overall = 0.2415                                        max =      1017
> 
>                                                 Wald chi2(45)      =  11473.56
> corr(u_i, X)   = 0 (assumed)                    Prob > chi2        =    0.0000
> 
> 
> --------------------------------------------------------------------------------------
> 
> . . .
> 
> ---------------------+----------------------------------------------------------------
>              sigma_u |          0
>              sigma_e |  8.2124003
>                  rho |          0   (fraction of variance due to u_i)
> --------------------------------------------------------------------------------------
> 
> 
> 
> And after expand:
> 
> . preserve
> 
> . expand 2
> (133799 observations created)
> 
> . xtset procode1
> 
> . xtreg q2_OHS ISTC q1_OHS ${q1_eq5d_elem_nf} q1_eq5d_health_scale
> ${other_health_nf} ${comorbs_nf} ${pa
> 
> > tients_nf_`severity'} ${provider_nf}, re
> 
> Random-effects GLS regression                   Number of obs      =     72180
> Group variable: procode1                        Number of groups   =       246
> 
> R-sq:  within  = 0.2200                         Obs per group: min =         2
>        between = 0.6400                                        avg =     293.4
>        overall = 0.2409                                        max =      2034
> 
>                                                 Wald chi2(45)      =  20798.64
> corr(u_i, X)   = 0 (assumed)                    Prob > chi2        =    0.0000
> 
> --------------------------------------------------------------------------------------
> 
> . . .
> 
> ---------------------+----------------------------------------------------------------
>              sigma_u |   1.115697
>              sigma_e |  8.1965088
>                  rho |  .01819121   (fraction of variance due to u_i)
> --------------------------------------------------------------------------------------
> 
> . restore
> 
> 
> Thank you.
> 
> Silviya
> 
> 
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