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Re: st: Heterokedasticity - help


From   "Ingo Brooks" <ingo.brooks@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: Heterokedasticity - help
Date   Thu, 3 May 2007 17:09:21 +0200

Le,

Which Stata version do you use? In Stata 9.2 you can estimate fixed
effects models with heteroscedasticity consistent standard error
estimates. Just type -xtreg ... , fe robust-. However, typically you
should not estimate a fixed effects model with just heteroscedasticity
consistent standard errors but rather a model with panel robust
standard errors. In Stata 9.2 you can do this by typing -xtreg ... ,
fe cluster(ID)- where ID is assumed to be the panel identifier.

However, your panel seems to be a microeconometric panel. Therefore,
probably heteroscedasticity is not the main problem for your
residuals. Rather the problem might be cross-sectional dependence
between the subjects. Therefore, I would recommend you to estimate a
fixed effects model with Driscoll-Kraay standard errors since these
standard errors are heteroscedasticity consistent and robust to
cross-sectional as well as temporal dependence. Thanks to Dan
Hoechle's -xtscc- program it is simple to estimate fixed-effects
regressions with Driscoll-Kraay standard errors. Just type -xtscc ...
, fe-. To download the program type -net search xtscc-.

I hope this helps.

Best,
Ingo




On 5/3/07, Tung Le <empiretung@yahoo.com> wrote:
Dear Statalist, I am new to Stata and would like to ask for your help on the heterokedasticity issue:
1. I run xttest3 and find that heterokedasticity exist in my data. However, the author of the test suggests that we should take the test with great care when the data has large N and small T. My data has 730,000 obs over 12 year period (unbalanced). Are they considered small T? and if they are, is xttest3 suitable? it seems that "robvar" test does not allowed for panel.
2. Assume that my data exist the heterokedasticity problem, what type of xt model is suitable to correct this? xtreg..., fe seems not to allow for robust standard error. xtgls? or xtpcse?
3. I tried xtgls but they said matsize is too small. They suggests that matsize should be at least equal to the number of groups of firms in my data so I think they use fixed effects model. However, why does not it require large matsize when I run xtreg..., fe? what is the difference here?
Many thanks and hope to receive your advice soon,
Le

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