Alice,
> -----Original Message-----
> From: [email protected]
> [mailto:[email protected]] On Behalf Of aapdm
> Sent: 17 July 2008 12:13
> To: [email protected]
> Subject: Re: Heteroskedasticity and fixed effects (was: st:
> RE: Re: Weak instruments)
>
> Dear Mark,
>
> Many thanks for this.
>
> It seems to me that Stata 10 now adjusts standard errors
> according to the paper by Stock and Watson.
No, that's not quite right. If you check -help whatsnew-, you'll see in
the "update 25feb2008" section:
20. xtreg, fe now uses vce(cluster id) when vce(robust) is specified,
in light of the new
results in Stock and Watson, "Heteroskedasticity-robust standard
errors for fixed-effects
panel-data regression," Econometrica 76 (2008): 155-174.
In other words, if you specify "robust" you get "cluster robust", not
"Stock-Watson-robust". This is easy to confirm - just run the model
with the -robust- option and again with the -cluster-, and you'll see
you get the same results.
> Actually the standard errors reported after xtreg,fe are
> different between Stata 9 and Stata 10.
>
> However to know whether I should adjust standard errors for
> heteroskedasticity (for instance using cluster, as you
> suggest) I would first of all test whether there is evidence
> of heteroskedasticity or not.
>
> I was wondering which test or command I should be using. I
> found the xttest3 that can be used after xtreg, or whitetst after reg.
-whitetst- (or, pardon the self-plug, -ivhettest-) after -regress- with
fixed effects inserts as dummies by hand probably won't be appropriate,
for the reason I gave in my previous email.
