Feasible Generalised Least Squares

[chettyd3]

Hi,

I am estimating a panel data model making use of FGLS with period effects in eviews and would just like to understand how the weighting of the different periods is calculated in eviews?

[EViews Glenn]

Period effects or period weights?

[chettyd3]

period weights

[EViews Glenn]

The weighting matrix uses the inverse of the period-specific variances of the residuals from the unweighted model. The balanced Kronecker form of the weight matrix depends on the way you represent your panel, but the easy way to think about it is that (effectively), each observation is weighted by the inverse of the standard deviation (non-df corrected) of that period's residual variance, as computed from the unweighted model residuals.