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From |
Hanley Chiang <hchiang@fas.harvard.edu> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
st: xtreg, fe and cluster-robust standard errors |

Date |
Tue, 13 May 2008 16:57:44 -0400 |

Dear all,

Does anyone know the exact degrees of freedom adjustment for obtaining the clustered standard errors in the command

xtreg y x, i(id) fe cluster(id)?

This issue has been discussed previously (see http://www.stata.com/statalist/archive/2006-12/msg00867.html), but I don’t think the exact adjustment was ever specified.

More precisely, let V be the cluster-robust estimator for the asymptotic variance-covariance matrix of the fixed effects estimator. V is specified in Wooldridge (2002, p.275). The command

xtivreg2 y x, i(id) fe cluster(id)

gives a variance-covariance matrix equal to V. The command

xtivreg2 y x, small i(id) fe cluster(id)

gives a variance-covariance matrix equal to {[(N-1)/(N-k)][M/(M-1)]}V where N is the sample size, k is the number of regressors (excluding the fixed effects), and M is the number of clusters. Finally, the command

areg y x, absorb(id) cluster(id)

gives a variance-covariance matrix equal to {[(N-1)/(N-G-k)][M/(M-1)]}V where G is the number of fixed effects. (In my case, G=M.)

However, in Stata version 10.0, the clustered standard errors in xtreg, fe are equal to none of the above. Does anyone know the adjustment factor that multiplies V?

Thanks,

Hanley Chiang

References

Wooldridge, Jeffrey (2002). Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press.

--

Hanley S. Chiang

Ph.D. Candidate

Harvard University Economics Dept.

Littauer Center

Cambridge, MA 02138

Phone: (617) 613-1251

http://www.people.fas.harvard.edu/~hchiang

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**Follow-Ups**:**st: Re: xtreg, fe and cluster-robust standard errors***From:*Hanley Chiang <hchiang@fas.harvard.edu>

**st: combining cross-sections into panel***From:*Gisella Young <gisellayoung@yahoo.com>

**Re: st: xtreg, fe and cluster-robust standard errors***From:*"Clive Nicholas" <clivelists@googlemail.com>

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