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findit xttest1 (this test use to be able to be installed through the ssc option but no longer is – if you go through “findit xttest1” you’ll get an option to install it)

findit xtabond2

findit abar (Arellano-Bond test for autocorrelation)

findit xtpedroni (cointegration with panel data)

The following commands immediately ahead explain how to estimate various models and decide between them.  The explanation of and rationale for the various models appears after the commands.   

xtreg top1 demcont repcont top1lag, fe

estimates store fixed

xtreg top1 demcont repcont top1lag, re

estimates store random

hausman fixed random    (if the number to the right of “Prob>chi2” is less than

.05, reject the null hypothesis that the random effects model is preferable – i.e., that the errors are not correlated with the regressors in favor of the alternative hypothesis that the errors are correlated with the regressors and, hence, we should use the fixed effects model)

NOTE: The hausman test can be used with xtregar.  Thus, you could estimate the results with xtreg in fe, then run xtserial test (xtserial top1 demcont repcont top1lag) to see if you had first-order autocorrelation.  If so, re-estimate the model using xtregar.  Save these results (estimates store fixed).  Then do the same thing for the random effects model and then run a hausman test on the two xtregar models.  However, you can’t use the hausman test with heteroscedasticity adjustments [e.g., xtreg ending in vce(robust) or vce(cluster id)].

Further Note: You could create state dummy variables and estimate fixed effects model all in one command (assuming you have a variable named stnum):

regress top1 demcont repcont top1lag i.stnum  (Stata versions prior to 11 require

xi: at the beginning of the command line

xi:  regress top1 demcont repcont top1lag i.stnum

Cameron and Trivedi (pp. 267-268) say, “A serious shortcoming of the standard Hausman test is that it requires the RE estimator to be efficient.   This in turn require that the (alpha and e – don’t have greek letters) are i.i.d. (independent and identically distributed), an invalid assumption if cluster-robust standard errors for the RE estimator differ substantially from default standard errors.” A user written version of the robust Hausman test can be executed as follows:

xtreg top1 demcont repcont top1lag, re vce(cluster id)

xtoverid   (when I ran this test I received the following error message: saved RE estimates are degenerate (sigma_u=0) and equivalent to pooled OLS)

Other Diagnostic Tests:

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