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  • interpretation of sigma_u, sigma_e and rho in xtreg, re

    Hello,
    I am currently analysing some paneldata. The hausman test showed that I need to use the random effects model for this data set.
    Following a part of my output:

    sigma_u | 0
    sigma_e | .16219692
    rho | 0

    How can I interpret sigma_u, sigma_e and rho?
    Are these results a problem for my estimate?

    Thank you in advance for your response!

  • #2
    hello,
    I need your help. what command to use to know if these effects are random or fixed

    Comment


    • #3
      Laura:
      welcome to this forum.
      Please show what you typed and what Stata gave you back (as per FAQ).
      Your results, wherever they come from, deny the evidence of any panel-wise effect.
      Kind regards,
      Carlo
      (Stata 19.0)

      Comment


      • #4
        GUIRA:
        go -hausman- if you're using default standard errors.
        Kind regards,
        Carlo
        (Stata 19.0)

        Comment


        • #5
          This was my hausman test:

          hausman fixed random

          ---- Coefficients ----
          | (b) (B) (b-B) sqrt(diag(V_b-V_B))
          | fixed random Difference Std. err.
          -------------+----------------------------------------------------------------
          M. | .5398418 .5396112 .0002306 .0001368
          ------------------------------------------------------------------------------
          b = Consistent under H0 and Ha; obtained from xtreg.
          B = Inconsistent under Ha, efficient under H0; obtained from xtreg.

          Test of H0: Difference in coefficients not systematic

          chi2(1) = (b-B)'[(V_b-V_B)^(-1)](b-B)
          = 2.84
          Prob > chi2 = 0.0918


          and this is my regression:

          xtreg R. M., re

          Random-effects GLS regression Number of obs = 171,396
          Group variable: id Number of groups = 529

          R-squared: Obs per group:
          Within = 0.5785 min = 324
          Between = 0.9729 avg = 324.0
          Overall = 0.5813 max = 324

          Wald chi2(1) = 237907.07
          corr(u_i, X) = 0 (assumed) Prob > chi2 = 0.0000

          ------------------------------------------------------------------------------
          R. | Coefficient Std. err. z P>|z| [95% conf. interval]
          -------------+----------------------------------------------------------------
          M. | .5396112 .0011063 487.76 0.000 .5374428 .5417795
          _cons | .0002957 .000412 0.72 0.473 -.0005117 .0011031
          -------------+----------------------------------------------------------------
          sigma_u | 0
          sigma_e | .16219692
          rho | 0 (fraction of variance due to u_i)
          ------------------------------------------------------------------------------

          Last edited by Laura Hess; 01 Jul 2022, 00:40.

          Comment


          • #6
            Laura:
            while -hausman- confirms -re-, you do not seem to have a panel-wise effect (sigmau=0).
            In all likelihood, your model is ill-specified, since you have one predictor only.
            Kind regards,
            Carlo
            (Stata 19.0)

            Comment


            • #7
              okay, thank you very much!

              Comment


              • #8
                apart from that: how can these three key figures be interpreted in general?

                Comment


                • #9
                  Laura:
                  see -xtreg- entry in Stata .pdf manual and/or any decent textbook on panel data econometrics therein included.
                  Kind regards,
                  Carlo
                  (Stata 19.0)

                  Comment

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