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Re: st: RE: xtivreg2, error 198


From   Simon Lüchinger <sluechinger@iew.unizh.ch>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: RE: xtivreg2, error 198
Date   Thu, 25 May 2006 15:42:57 +0200

Mark,

thanks a lot for your answer. Yes, I think -nonest- and -dfadj- would suit my needs; unfortunately, I cannot realy test them, because my Stata dates from the time you wrote the -xtivreg2-, i.e. before -xtreg- had the cluster option. Of course, it would be fantastic if you could put -nonest- and -dfadj- into -xtivreg2- someday.

As a first approximation, I demeaned all my variables and estimated the model with -ivreg2- and the cluster option; I am aware that the SEs are too small and a dof adjustment is needed. My question is, however, whether this approach yields the same result as -xtivreg2- with the -nonest- option would.

Best regards

Simon



The problem is interesting but tricky. The usual classical and robust var-cov matrix for the fixed effects estimator need a degrees of freedom adjustment for the fixed effects (see any textbook treatment).

The cluster-robust var-cov matrix doesn't need this adjustment, so long as the panels (corresp. to the fixed effects) don't span more than one cluster.

The problem arises when the panels cut across clusters. Some dof adjustment is needed, but what should it be? I don't know, and I haven't seen any paper that describes exactly what it should be. When writing -xtivreg2-, I opted simply for the program to exit with error. Official -xtivreg- now has the -nonest- and -dfadj- options; these didn't exist when I wrote -xtivreg2-. You'll see that they allow you to go between the extremes of no dof adjustment (which will give you SEs that are too small) and a full dof adjustment (which will give you "conservative" SEs that are on the large side). Have a look at them and see if they would suit your needs. I could perhaps put them into -xtivreg2-....

Cheers,
Mark

Prof. Mark Schaffer
Director, CERT
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS
tel +44-131-451-3494 / fax +44-131-451-3296
email: m.e.schaffer@hw.ac.uk
web: http://www.sml.hw.ac.uk/ecomes
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