[Gretl-devel] panel data, FE model, calculation of R^2

I was trying to understand how GRETL calculates R^2 for fixed-effects panel-data models as the value it produces is different from Stata and R's plm library. As far as I have been able to understand, the calculation happens in the function fix_within_stats in the file lib/src/gretl_panel.c as follows (line 1758-9 in the current CVS head, comment in the original): /* should we modify R^2 in this way? */ fmod->rsq = 1.0 - (fmod->ess / fmod->tss); Here fmod->ess is the error-sum-of-squared from the regression on the demeaned data but fmod->tss has been overwritten earlier in the function (line 1750) by the TSS from the pooled regression. I am a newcomer to this list, so apologies if this has already been discussed, but it is not clear to me whether the above is a useful measure of goodness of fit, since a high R^2 would be reported even in situations where the unit dummies explain a lot of the variation in y while the explicit regressors do not add much. I would be grateful if someone can point me to some justification in the literature for this measure. I also think that the way R^2 is calculated should be discussed in the User's Guide. Stata's xtreg reports three different measures of "R^2" (see page 10 of http://www.stata-press.com/manuals/stata12/xt_xtreg.pdf ) none of which match the one above. R's plm function from the plm library reports an R^2 which equals the "within" R^2 reported by Stata. Gretl could report the same value simply by not modifying the values in fmod->rsq. Regards, Jyotirmoy Bhattacharya