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Re: st: robust st. errors and fixed effects


From   "Mark Schaffer" <M.E.Schaffer@hw.ac.uk>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: robust st. errors and fixed effects
Date   Mon, 21 Oct 2002 15:46:20 +0100

Peter,

Date sent:      	Mon, 21 Oct 2002 16:11:56 +0200
From:           	"Peter Haan" <phaan@diw.de>
To:             	statalist@hsphsun2.harvard.edu
Subject:        	st: robust st. errors and fixed effects
Send reply to:  	statalist@hsphsun2.harvard.edu

> Hi,
> is there a possibility to estimate a fixed effect model, controlling for 
> heterogeneity.
> the comad robust and xtreg don`t work togetehr.
> Is there an other way to control for h.?
> thanks for your help
> peter

Do you mean "heterogeneity" or "heteroskedasticity"?  The subject 
line of your email suggests the latter.

As was suggested in a posting to Statalist earlier today, you can get 
-regress- to estimate a fixed effects model for you, and -regress- 
will of course generate robust SEs.

The posting suggested estimating a "least squares dummy variable" 
(LSDV) regression, with a dummy for each observational unit 
(individual, firm, whatever).  This is OK unless you have a lot of 
different units, in which case you get more dummy variables than you 
can reasonable handle.  A slightly more laborious but also equivalent 
method is to transform the data by putting it into mean-deviation 
form, and then estimating on the transformed data.

There's still the degrees of freedom to correct (the adjustments are 
different in panel data models; see Steve Stillman's post on this a 
day or two ago).  An inconvenience, but not infeasible.

Hope this helps.

--Mark

Note to StataCorp: This is something for the wish list for Stata 8 - 
robust covariances for xtreg, areg, xtivreg et al.  The cluster() 
option would be particularly valuable: cluster(id), where id is also 
the identifier used with -iis-, would allow inference using standard 
errors that are robust to arbitrary serial correlation.

Prof. Mark E. Schaffer
Director
Centre for Economic Reform and Transformation
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS  UK
44-131-451-3494 direct
44-131-451-3008 fax
44-131-451-3485 CERT administrator
http://www.som.hw.ac.uk/cert
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