[Gretl-devel] Re: panel FE with constant dep var: what does gretl do?
On Fri, 12 Jul 2019, Sven Schreiber wrote:
Am 12.07.2019 um 19:00 schrieb Allin Cottrell:
> On Fri, 12 Jul 2019, Sven Schreiber wrote:
>
> Hm, there might be a slight inconsistency compared to a standard OLS
> specification where the dep var is constantly zero. There gretl refuses
> to continue, and in isolation I can see the reason for that. But in a
> panel context where the dep var is time invariant and you apply the
> within transform, then it is also identical to zero, and here gretl
> produces something. I guess the difference is historical, but maybe we
> want to rationalize things in this area.
> Actually, in the fixed-effects case a time-invariant dependent
> variable is in general not all zeros. It goes to zero on subtraction
> of the group means but, as in stata, we add back in the global mean.
> If it were truly all zeros estimation would fail as in OLS.
>
OK, so it's not a pure within transformation. But still: If the dep var
is constant and non-zero, we set all other regressor coeffs to zero
(except the constant term). Fine. But if the dep var is all zeros, one
could also set all regressor coeffs to zero, including the constant,
instead of throwing an error. What makes the former case that much
different from the latter? (The estimated residuals vanish in both cases.)
True. But if a user runs a regular regression in which the dependent
variable is all zeros it's surely a safe bet that he or she has made
a mistake. Nothing informative can come out of it other than that
conveyed by gretl's "all zeros" error message.
If agreed, that puts the boot on the other foot. Despite the fact
that the dep var is not (technically, the way gretl and stata do it)
all zeros in the case of fixed effects with a time-invariant y, one
might say that's equally a specification error and should be flagged
as such. I wouldn't have any real objection to making that an error
too. (We'd differ from stata's xtreg and R's plm but who cares?)
Allin