# Panel regression: what to do when Hausman test fails and want to keep time invariant regressors?

I am running a panel data regression. First, I did a pooled OLS regression. Then I did a random effects (re) one. I carried out the Hausman test, and it refuted the null hypothesis (ie. I am discouraged to use random effects over fixed effects). So, I did the following:

(1) I carried out a Hausman-Taylor regression (in Stata, xthtaylor). Using xtoverid, I got that this model is OK when compared with the fixed effects one. However, this model displays no $\text{R}^2$ value. Furthermore, I was told that Hausman-Taylor is not a good model to use when you goal is to use the model to estimate outcomes.

I am trying to find out about the minimum distance estimator. It should be a procedure that allows me to combine fixed effects with time invariant regressors. Is there a Stata command for that? Do you know any reference on this topic?

Any suggestion on how to deal with my current problem is very welcome!

• What about Fixed-effects Vector Decomposition? There seems to be a lot of controversy on this method, however. – JJ O Nov 7 '12 at 15:57