PANELFM Procedure

@PANELFM is a procedure for estimating the cointegrating vectors using the multivariate group mean panel FMOLS (fully modified OLS) from Pedroni(2000). A companion procedure for estimating with DOLS (dynamic OLS) rather than FM OLS is @PANELDOLS.

@PANELFM( options ) start end

# list of variables(list dependent variable first)

Parameters

start, end

range for regression. By default, the maximum range permitted by all variables involved in the regression allowing for lags.

Options

DET=NONE/[CONSTANT]/TREND

TDUM/[NOTDUM]

Use TDUM to subtract out common time effects

AVERAGE=[SIMPLE]/SQRT/PRECISION

Determines how the individual estimates are combined to compute the full sample estimate. AVERAGE=SIMPLE takes a simple arithmetic average. This is the default, and the behavior of Pedroni's original program. AVERAGE=SQRT weights each individual by the diagonal matrix formed by taking the square roots of the precision matrix (inverse covariance matrix) of the estimates for that individual. This matches up with the averaging done in computing the t-statistics, that is, the coefficients and covariance matrix from AVERAGE=SQRT will reproduce the average t-statistics. AVERAGE=PRECISION weights each individual by the precision of its estimates.

LAGS=number of lags to use in the Bartlett kernel [5]

SMPL=standard SMPL option[not used]

PRINT=NONE/SHORT/[FULL]

Sets the level of printed output. PRINT=FULL includes the estimates for the individuals, while PRINT=SHORT just does the full sample estimates.

TITLE="title of report" ["Mean Group Panel FM Estimation"]

BVEC=VECTOR with hypothesized slope coefficients [all zeros]

The t-statistics reported are for tests against this vector.

Variables Defined

%BETA	group estimates of coefficients (VECTOR)
%STDERRS	group estimates of standard errors (VECTOR)
%TSTATS	group estimates of t-statistics (for testing BVEC if you include it) (VECTOR)
%XX	estimates of covariance matrix of group estimates (SYMMETRIC)
%RESIDS	cointegrating residuals (computed at the group mean coefficients)
%%IBETAS	individual coefficients (VECTOR[VECTOR] with %%IBETAS(i) the coefficient vector for individual i).
%%ISTDERRS	individual standard errors (VECTOR[VECTOR] with %%ISTDERRS(i) the standard error vector for individual i).
%%ITSTATS	individual t-statistics (for testing BVEC if you include it) (VECTOR[VECTOR] with %%ITSTATS(i) the t-statistic vector for individual i).
%%IXX	individual covariance matrices (VECTOR[SYMM] with %%IXX(i) as the covariance matrix for individual i).

Example

* Replication of Pedroni(2007), "Social capital, barriers to production

* and capital shares: implications for the importance of parameter

* heterogeneity from a nonstationary panel approach", Journal of Applied

* Econometrics, vol 22, no 2, 429-451.

open data pedroni-data.txt

calendar(panelobs=43,a) 1950:1

data(format=free,org=columns) 1//1950:01 29//1992:01 country year pop rgdpl rinvest

* Countries are (in order): Egypt, Kenya, Morocco, Nigeria, South

* Africa, Dominican Republic, Bolivia, Brazil, Chile, Columbia,

* Paraguay, Peru, Venezuela, Japan, Philippines, Sri Lanka, Austria,

* Belgium, Denmark, Finland, West Germany, Ireland, Italy, Luxembourg,

* Netherlands, Norway, Spain, Sweden, Turkey.

dec vect[strings] labels(29)

input labels

Egypt

Kenya

Morocco

Nigeria

South Africa

Dominican Republic

Bolivia

Brazil

Chile

Columbia

Paraguay

Peru

Venezuela

Japan

Philippines

Sri Lanka

Austria

Belgium

Denmark

Finland

West Germany

Ireland

Italy

Luxembourg

Netherlands

Norway

Spain

Sweden

Turkey

set logypc = log(rgdpl)

set logiy = log(rinvest)

* Do panel FM estimates. (These are somewhat different from those in the

* paper due to an error in the original calculations).

@panelfm(det=trend,print=short,lags=2)

# logypc logiy

Sample Output

Mean Group Panel FM Estimation

LHS Variable LOGYPC

Individuals 29

Time Periods 43

Kernel Width 2

common time dummies NOT included

RHS Variable H0 Coefficient

LOGIY 0.000000

Member Variable Coefficient t-Statistic

Group LOGIY 0.384032 25.455381