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Sequential (two-stage) estimation of linear panel data models

Sebastian Kripfganz

United Kingdom Stata Users' Group Meetings 2017 from Stata Users Group

Abstract: I present the new Stata command xtseqreg that implements sequential (two-stage) estimators for linear panel data models. In general, the conventional standard errors are no longer valid in sequential estimation when the residuals from the first stage are regressed on another set of (often time-invariant) explanatory variables at a second stage. xtseqreg computes the analytical standard-error correction of Kripfganz and Schwarz (ECB Working Paper 1838, 2015) that accounts for the first-stage estimation error. The command can be used to fit both stages of a sequential regression or either stage separately. OLS and 2SLS estimation are supported, as well as one-step and two-step "difference"-GMM and "system"- GMM estimation with flexible choice of the instruments and weighting matrix. Available postestimation statistics include the Arellano-Bond test for absence of autocorrelation in the first-differenced errors and Hansen's J-test for the validity of the overidentifying restrictions. While it is not intended to introduce xtseqreg as a competitor for existing commands, it can mimic part of their behaviour. In particular, xtseqreg can replicate results obtained with xtdpd and xtabond2. In that regard, I will illustrate some common pitfalls in the estimation of dynamic panel models.

Date: 2017-09-14
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