[Sebastian Kripfganz]

1. The J-test is not valid for the model with heterogeneous coefficients and therefore not reported. We briefly mention this in Section 2.2 of our article.
2. There is no such option for xtivdfreg to show the individual coefficients from the MG estimation. I need to think about whether this would be a useful addition.
3. Since the regressors are assumed to have a factor structure, and the factors are assumed to be stationary, I would conclude that the approach does not allow for nonstationary variables.
4. There is nothing special about the interpretation of the coefficients. If the model is correctly specified and you have valid instruments, then you can interpret the coefficients as causal in the usual way.
5. You still specify an endogenous regressor in the list of right-hand side variables but then would need to specify appropriate instruments with the iv() option.

[John Francois]

First, thank you all for continuously making applied work accessible and easily applicable.
I do have a few questions about the xtivdfreg command (and sorry for the lengthy post): First, I noticed that the "mg" option doesn't report the J-test and the manual didn't say why. How do we then know for sure if after accounting for slope heterogeneity, the J-test may hold assuming under slope heterogeneity it didn't hold? Second, I noticed that the xtdcce2 has the option "full" that allows for the reporting of the individual estimates for panel units. Does the "xtivdfreg" have this feature? Third, I just want to make sure that the "xtivdfreg" accommodates both stationary and nonstationary variables for estimation. For example, if one uses nonstationary variables in a bivariate estimation, can one interpret the coefficient as a long-run parameter. Fourth, in the footnote, you do discuss that if no valid external instrument exists for an endogenous variable, one can include other informative exogeneous variables in the righthand side so that they and their lags can serve as valid instruments. If this is done, can the parameter of interest in the regression be interpreted as causal? Lastly, (and might have missed) if a righthand side variable (say X) is endogenous rather than exogeneous, does it just enter the regression as "xtivdfreg Y X, [options]" or there is a special way of inputting it.

Thank you and I would really appreciate your response on these.

-John

[Sebastian Kripfganz]

With thanks to Kit Baum, the latest version 1.0.3 of the xtivdfreg command is now also available on SSC (in addition to my personal website):

ssc install xtivdfreg

Compared to earlier versions, this version has the new suboption fvar() for option iv(), which allows to extract factors from only a subset of the specified instrumental variables. This could for instance be useful if variables x and x² are used as regressors/instruments, but the squared term should not be used for the factor extraction. Please see the help file for details.

Our accompanying article was accepted for publication in the Stata Journal:

• Kripfganz, S., and V. Sarafidis (2021). Instrumental variable estimation of large-T panel data models with common factors. Stata Journal, forthcoming.

[Sebastian Kripfganz]

Due to an issue with the way how Stata deals with interaction terms since Stata 15 (see https://www.statalist.org/forums/for...94#post1576494), using interaction terms with xtivdfreg could result in unexpected error messages.

A workaround is now implemented in the latest version 1.0.1.

adoupdate xtivdfreg, update