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Re: Re: st: two-way fixed effects


From   "Martin Wang" <zwang215@gmail.com>
To   "statalist@hsphsun2.harvard.edu" <statalist@hsphsun2.harvard.edu>
Subject   Re: Re: st: two-way fixed effects
Date   Wed, 25 Jun 2008 17:07:19 +0800

Dear all,

Thank you for your suggestions. I tried based on your advise and find xtreg and xi: reg i. are the same, in terms of estimate and SE but may differ in R squred and others. Regarding the firm-year interaction dummy, I thought that over again, and I think indeed it is capturing a little different fixed effect, allowing each firm-year combination has an a different intercept and no relation between different intercepts. And also, if there is no variation within a firm-year combination, then the model cannot be estimated. I tried a2reg but it seems weird..Please correct me if I'm wrong.

Thanks!

Martin

======= 2008-06-25 05:02:52 Original Message£º=======

>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
>>
>>
>>
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