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Re: st: Using the cluster command or GLS random effects?


From   Joseph Coveney <jcoveney@bigplanet.com>
To   Statalist <statalist@hsphsun2.harvard.edu>
Subject   Re: st: Using the cluster command or GLS random effects?
Date   Fri, 18 Jul 2003 20:47:19 +0900

Mark Schaffer followed-up Buzz Burhans's response to a question about the 
differences between -xtreg, re- and -regress , cluster()-.  Mark brought up 
differences in consistency and efficiency between the two methods.  Excerpting 
Mark's post:

--------------------------------------------------------------------------------

Trade offs:

-xtreg- gives you more efficient estimates if your modelling of the 
correlation caused by clustering is correct.  If it isn't, your coeffs and 
SEs are wrong.

-regress- with -cluster- gives you consistent estimates across a broad 
range of possible forms of the correlation, but they won't be as efficient 
as when you know the exact form (and you're right).

--------------------------------------------------------------------------------


I have a follow-up question on consistency:  random effects regression gives 
inconsistent results when there is substantial correlation between a fixed-
effect regressor and the random effect; will -regress , cluster()- overcome 
this liability and provide consistent estimators when there is a correlation 
between a regressor and an (un-modeled) random effect?  As an extension, if you 
get a significant Hausman test after -xtreg , re-, would a reasonable back-up 
approach--albeit taking a hit in efficiency--be to resort to -regress , 
cluster()-?

Joseph Coveney



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