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From |
Mark Schaffer <M.E.Schaffer@hw.ac.uk> |

To |
anirban basu <abasu@midway.uchicago.edu>, statalist@hsphsun2.harvard.edu |

Subject |
Re: st: Cross-Sectional Time Series |

Date |
Tue, 25 Jun 2002 22:34:12 +0100 (BST) |

Anirban, Quoting anirban basu <abasu@midway.uchicago.edu>: > > Hi Mark, > > Thanks for the clarifications. I knew that the cluster option > does the > Huber-White correction for the standard errors but realized > that the > empirical var-cov estimate used by this command is different > from the > parameterized exchageable corr model. > However, the coefficient estimates with regress are the same > as the xtreg, > fe or xtreg, re command which assumes an exchangeable > correlation. I > think, and please fell free to correct me, these will be > different if we > use a different correlation structure model. Not quite sure what you mean, so apologies if I'm off target. The coefficient estimates with -regress- won't be the same as with -xtreg, fe- (unless the former is estimating the same model by explicitly including the fixed effects as dummy vars). Both sets of coefficients will be different again from those produced by -xtreg, re-. --Mark > > > Anirban > > ______________________________________ > ANIRBAN BASU > Doctoral Student > Harris School of Public Policy Studies > University of Chicago > (312) 563 0907 (H) > ________________________________________________________________ > > > On Tue, 25 Jun 2002, Mark Schaffer wrote: > > > Hi everybody. > > > > Just a couple of clarifying details on -cluster- vs. -xtreg- > and > > Anirban's response to John. > > > > The -cluster- option for -regress- doesn't really impose a > particular > > within-cluster correlation structure on the data. If I > understand it > > correctly, what -cluster- does instead is loosen the usual > assumption > > of independence of observations to independence of clusters. > The > > correlation between observations within clusters can be > arbitrary. > > The way this works is basically by treating all the > observations in a > > cluster as a kind of "super-observation" and then applying > the robust > > ("sandwich") formula to these super-observations in order to > > > calculate the standard errors of the coefficients produced > by - > > regress-. See the manual entry for -regress-, p. 87. > > > > The estimated coefficients (the betas) produced by -regress- > are the > > same whether or not the -cluster- option is used; the only > thing that > > is different is the standard errors. > > > > With fixed effects, you _do_ impose a particular correlation > > > structure, namely all the observations within a cluster > share U(k) in > > Anirban's notation. If you use -xtreg- with -fe- to > estimate, Stata > > does not, however, use a first-difference estimator - it > uses a fixed > > effects estimator. In other words, it doesn't > first-difference to > > get rid of the fixed effects, it uses the mean-deviation > > transformation to get rid of them. > > > > Hope this helps. > > > > --Mark > > > > Quoting anirban basu <abasu@midway.uchicago.edu>: > > > > > Hi John, > > > > > > > > > With reg command and cluster option, one basically imposes > an > > > exchangeable > > > correlation structure on the data. i.e assume corr (y(i), > > > y(j)) = rho, > > > where i ne j and i,j are any two observation from the > same > > > cluster. Rho > > > is constant for every pair of observation within a > cluster. > > > So, one can > > > visuaize it in terms of a random effects model where : > > > > > > Y(k) = Xb + U(k) + e, where k represents clusters and U(k) > is > > > a > > > cluster-specific random effect that is common to all > > > observation in that > > > cluster. However, -reg- does not give estimates of this > random > > > effect. It > > > just estimates -betas- assuming this structure. > > > > > > However, this estimation is correct only if U(k) are > > > uncorrelated with > > > Xs. i.e. the unobserved characteristics of a cluster over > time > > > is > > > uncorrelated with the X over time. If not then fixed > effects > > > is useful. > > > > > > > > > With fixed effects, one evades the correlation problem by > > > taking > > > differences. i.e for any cluster k: > > > > > > Y(ik) - Y(1k) = [X(ik) - X(1k)]b + [e(ik) - e(1k)] > > > > > > Note that by taking the difference, the unobserved U(k) is > > > eliminated. > > > However, fixed effects assume the U(k) is fixed over time > for > > > any cluster > > > k. i.e. the unobserved characteristics of a cluster is not > > > changing over > > > time. Also, since we are taking a difference, fixed > effects > > > model cannot > > > estimate the betas for baseline covariates since they > cancel > > > out in the > > > difference. > > > > > > Hope this helps, > > > > > > Anirban > > > > > > > > > > > > ______________________________________ > > > ANIRBAN BASU > > > Doctoral Student > > > Harris School of Public Policy Studies > > > University of Chicago > > > (312) 563 0907 (H) > > > > ________________________________________________________________ > > > > > > > > > On Tue, 25 Jun 2002, John Neumann wrote: > > > > > > > Hello all, > > > > > > > > Since I frequently see panel data questions flying > around > > > the > > > > list, I'm thinking that some of you can provide me with > a > > > > very succinct answer to the following question, and in > so > > > > doing clarify conceptually for me the data-related > issue: > > > > > > > > I have data on investment products, by year. Not all > > > > products have data in each year. The dependent > > > > variable is scaled in such a way as to make time series > > > > variation in its levels of no concern. Here's the > question: > > > > > > > > What is the difference between using the reg command, > > > > with the robust and cluster option, vs. the xtreg > command > > > > fixed effects model? The cluster variable using reg > would > > > > naturally be the i( ) parameter for xtreg ... > > > > > > > > Thanks! > > > > > > > > John Neumann > > > > Boston University Prof. Mark Schaffer Director, CERT Department of Economics, School of Management Heriot-Watt University, Edinburgh EH14 4AS tel +44-131-451-3494 / fax +44-131-451-3008 email: m.e.schaffer@hw.ac.uk web: http://www.som.hw.ac.uk/ecomes ________________________________________________________________ DISCLAIMER: This e-mail and any files transmitted with it are confidential and intended solely for the use of the individual or entity to whom it is addressed. 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**Follow-Ups**:**Re: st: Cross-Sectional Time Series***From:*anirban basu <abasu@midway.uchicago.edu>

**References**:**Re: st: Cross-Sectional Time Series***From:*anirban basu <abasu@midway.uchicago.edu>

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