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st: two-way fixed effects


From   "Martin Wang" <zwang215@gmail.com>
To   "statalist" <statalist@hsphsun2.harvard.edu>
Subject   st: two-way fixed effects
Date   Wed, 25 Jun 2008 03:29:51 +0800

Dear Statalist,

I have an old question, which command should I use for two-way fixed effects? For example if I want to control both year and firm fixed effects. I find two methods as follows:
1)
. egen dummy = group(firm year)
. xi: reg quantity price i.dummy

and 2)
. xi: reg quantity price i.firm i.year

I find the two methods gave the same estimation of coefficient, but method 2) seems to yield a large t-stat. Could someone please advise which one should I use?

Many thanks!

Martin



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