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Re: st: Cluster option in Regress command


From   Mark Schaffer <M.E.Schaffer@hw.ac.uk>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: Cluster option in Regress command
Date   Mon, 09 Jun 2003 23:46:00 +0100 (BST)

Actually, either approach is valid (depending on the assumptions one 
makes), and in principle can even be used at the same time.  See, e.g., 
Arellano in the Oxford Bulletin of Economics and Statistics, 49:4 (1987), 
who proposed using the cluster-robust approach to the fixed effects 
estimator.  A more recent source is Wooldridge, Econometric Analysis of 
Cross Section and Panel Data (2002), p. 193.

Curiously, as of version 7, Stata's xtreg didn't have a cluster option.  I 
don't know if this is true in version 8.

--Mark

Quoting Richard Goldstein <richgold@ix.netcom.com>:

> Use the -xt- commands for time series-cross sectional 
> data, not the cluster option.
> 
> Rich Goldstein
> 
> Dr Sumon Bhaumik wrote:
> > 
> > Hi everyone,
> > 
> > I need help with a Stata command. In the "regress" command,
> there
> > is an option "cluster." Apparently, it is used when the data is
> > such that some of the observations may be correlated. For
> example,
> > if I estimate a specification using time series-cross section
> > pooled data of n banks and t years. Since the portfolios and
> many
> > of the financial ratios of each of the banks, used in the
> > specification, may be correlated across the t years, it seems to
> > me that I should use the "cluster" option. Am I mistaken? What
> > exactly is the econometrics of the "cluster" option? Thanks!
> > 
> > Regards,
> > 
> > Sumon
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> 



Prof. Mark Schaffer
Director, CERT
Department of Economics
School of Management & Languages
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.sml.hw.ac.uk/ecomes
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