st: Re: xtreg, fe and cluster-robust standard errors

[Hanley Chiang <hchiang@fas.harvard.edu>]

Thanks, Clive.  After some trial and error, it turns out that the 
cluster-robust covariance matrix in xtreg, fe is:

{[(N-1)/(N-k-1)][M/(M-1)]}V

where V is the asymptotic cluster-robust covariance matrix from 
xtivreg2.  I assume that xtreg is making a degrees-of-freedom adjustment 
for (k+1) regressors rather than k regressors because xtreg also 
estimates an intercept.

Best,
Hanley

Clive Nicholas wrote:

    Kit Baum's answer to Garrett Glasgow's poser in July 2004 might be
   of help here:
   http://www.stata.com/statalist/archive/2004-07/msg00616.html Also,
   have a look at Mark Schaffer's contribution to the thread, as well.
   If none of this helps, I can't assist any further. -- Clive Nicholas


Hanley Chiang wrote:


> 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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