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Re: st: ivreg2 and panel group heteroscedasticity


From   Mark Schaffer <M.E.Schaffer@hw.ac.uk>
To   statalist@hsphsun2.harvard.edu, Jeffry Jacob <jajacob@mail.smu.edu>
Subject   Re: st: ivreg2 and panel group heteroscedasticity
Date   Sat, 21 Aug 2004 18:35:25 +0100 (BST)

Jeffry,

Quoting Jeffry Jacob <jajacob@mail.smu.edu>:

> Hi all,
> The latest version of ivreg2 supports panel data by requiring the
> data
> to be tsset. But how does it interpret the _iis_ (individual
> identifier)
> variable?

It uses it to identify the group/cluster.  No fixed effects or anything 
like that.

> Suppose there is no autocorrelation but group-wise
> heteroscedasticity. Does the _robust_ option give the right
> standard
> errors or they only correct for arbitrary heteroscedasticity?

The latter.

> Will
> cluster option with _bw(1)_ do the trick?

Sort of.  The -cluster- and -bw- options can't be used together.  They do 
different things.

-cluster- allows for arbitrary within-group correlation (including 
autocorrelation of any form).  It also allows for arbitrary 
heteroskedasticity, including groupwise heteroskedasticity.

-bw- allows for autocorrelation with some time structure, i.e., you expect 
the autocorrelation to die out over time.  The argument to bandwith is 
related to how quickly you expect it to die out.  You can combine this 
with -robust- to get HAC (heteroskedastic and autocorrelation-consistent) 
standard errors.

> Moreover, to use _cluster_
> , I
> have to mean difference my data ( to remove individual
> unobservables).

Strictly speaking, the answer to your question is that you can use
-cluster- without mean-differencing or otherwise transforming your data.  
But it sounds like you still might want to do this anyway - it depends on 
the estimator you want to implement.

> As noted in Wooldridge (2002), Chapter 10, do I correct for the
> degrees
> of freedom in the standard errors?

Only if you do the mean-differencing or some other transformation.

Hope this helps.

Cheers,
Mark

> Any response will be much appreciated.
> Thanks,
> Jeffry
> 
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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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