Heavy Lifting - thoughts and web finds by an economist
     I also contribute to Division of Labour Load HL's Front Page
Monday, January 22, 2007

Why STATA represents a shift in my PPF

From the STATA-list digest:
New version of -xtoverid- that tests fixed vs random effects available from SSC

Thanks to Kit Baum, a new version of -xtoverid- is available from SSC.

The main change is that, after a standard random effects estimation using -xtreg,re-, -xtoverid- will report an artificial regression based test of fixed vs random effects. In the special case of homoskedastic errors, the test reported by -xtoverid- is equivalent to the standard Hausman-type test of fixed vs random effects. The advantages of the -xtoverid- test over the test statistic generated using the -hausman- command are that (a) it extends straightforwardly to the cases of heteroskedastic or clustered errors, and (b) it will always generate a nonnegative test statistic.

For those who are wondering why a test of fixed vs random effects is supported by a module for testing "overidentifying restrictions", the reason is that the extra orthogonality conditions that make random effects more efficient than fixed effects can be seen as overidentifying restrictions. In GMM-speak, the fixed effects estimator uses the orthogonality conditions that the regressors are uncorrelated with the idiosyncratic error e_it, i.e., E(X_it*e_it)=0. The random effects estimator uses the additional orthogonality conditions that the regressors are uncorrelated with the group-specific error u_i (the "random effect"), i.e., E(X_it*u_i)=0. These additional orthogonality conditions are overidentifying restrictions. See the -xtoverid- help file for further discussion, references, and an example where the test statistic reported by -xtoverid- is numerically equal to the test statistic reported by -hausman-.

How long would you have to wait for SAS to implement such a test? As far as I can tell, this change in STATA came within a couple of weeks of the topic first being mentioned on the STATA listserv.

This is one reason why my vitae has almost 200% larger than when I applied for tenure five years ago.

Comments: Post a Comment



Purchase




Le Chai - galerie du vin



Support



Popularity

Posts that contain Craig Depken per day for the last 90 days.



Contacts

Heavy Lifting's Main Page
Email Me
Atom Feed

WWW
Heavy Lifting




Great Links

Money I Found Today

Heavy Lifting - Firehose style (56k warning)



Recent Posts

- Why STATA represents a shift in my PPF




Archives


home


Visitors
Site Meter Blogroll Me!



Credits

Modified maystar design
powered by blogger