Jason-
I understood Tom's original post to say that he was including firm and
year fixed effects (firm effects via use of -xtreg- and year effects
via a set of indicator variables), and was clustering on firm to allow
arbitrary serial correlation of errors within panel, but was concerned
about the implications of the cluster() option for a downstream test,
which question Mark answered quickly. I.e. he was not confusing the
cluster-robust estimator of the covariance matrix of the estimates
with the estimator that allows for individual-specific intercepts. I
could be wrong, of course.
The trouble he alludes to in a subsequent post is that once you
consider the possibility of arbitrary serial correlation of errors
within panel, it is a small step to worry about correlation across
panels within a year. As far as I know, a cluster-robust VCE
estimator with multiple levels of clustering is only possible via
-svyset- and the -svy- commands, but I would be happy to be
contradicted.
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