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When regressors are endogenous (correlated with the error term), Instrumental Variables (IV) are needed. Stata's built-in xtivreg can perform IV/2SLS estimation for FE and RE models. For more advanced options, such as robust standard errors and diagnostics for weak instruments, the user-written command xtivreg2 is the preferred choice. It is a wrapper for ivreg2 and must be installed first ( ssc install ivreg2, replace ).

When your model includes a lagged dependent variable as an explanatory variable ( yt−1y sub t minus 1 end-sub predicting

STATA Panel Data Analysis Guide | PDF | Coefficient Of Determination stata panel data

After FE, Stata reports an F-test that all panel-specific intercepts are zero. Rejecting → FE is preferred.

(Install: ssc install xtqreg )

But remember: panel correlations must respect dependence. Use xtcorr for cross-sectional correlation over time.

For our example:

Want to include a lagged dependent variable? FE is inconsistent (Nickell bias). Enter Arellano-Bond ( xtabond ). Stata’s implementation is powerful but:

Note: FE logit drops panels with no variation in the outcome. When regressors are endogenous (correlated with the error

tools transform raw longitudinal data into credible, publication-quality insights. By controlling for unobserved heterogeneity, you move closer to causal inference than cross-sectional methods ever allow.