Statalist


[Date Prev][Date Next][Thread Prev][Thread Next][Date index][Thread index]

Re: st: two-way fixed effects


From   David Jacobs <jacobs.184@sociology.osu.edu>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: two-way fixed effects
Date   Tue, 24 Jun 2008 17:02:52 -0400

First, you probably should estimate with -xtreg- particularly if you are using robust or cluster to correct your standard errors. This is the designated fixed-effects procedure in Stata and it uses more appropriate cluster or robust corrections for the standard errors. Note that you will still need to include the time-specific dummies as -xtreg- has no option to supply them automatically.

Second, if you believe that yearly (or any time based) shocks (such as say national shifts in in the business cycle) that affect all of the relationships are present, you should include time-specific dummy variables. But note that such models will be less efficient due to the increase in the number of parameters that must be estimated. The larger t-statistic you mention probably stems from greater multicollinearity in a two- rather than a one-way fixed-effects model.

Dave Jacobs

At 03:29 PM 6/24/2008, you wrote:

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



*
* For searches and help try:
* http://www.stata.com/support/faqs/res/findit.html
* http://www.stata.com/support/statalist/faq
* http://www.ats.ucla.edu/stat/stata/

*
*   For searches and help try:
*   http://www.stata.com/support/faqs/res/findit.html
*   http://www.stata.com/support/statalist/faq
*   http://www.ats.ucla.edu/stat/stata/



© Copyright 1996–2014 StataCorp LP   |   Terms of use   |   Privacy   |   Contact us   |   What's new   |   Site index