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Re: st: Two-Way Fixed Effect Estimation


From   "Augusto Cadenas" <aug.cadenas@googlemail.com>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: Two-Way Fixed Effect Estimation
Date   Mon, 18 Aug 2008 18:47:27 +0200

I agree with Maarten, there's nothing magical about time. Besides, if
your worry is about the degrees of freedom lost (as emerges from your
email), methinks that -xtreg, fe- adjusts for them anyway. Just try
-xtreg,fe- with either -xi: xtreg ... i.year, fe i(sector)- or -xi:
xtreg ... i.sector, fe i(year)- and you should get the same. Same for
-areg, a()-.



On Wed, Aug 13, 2008 at 8:23 AM, Maarten buis <maartenbuis@yahoo.co.uk> wrote:
> --- Asgar Khademvatani <akhademv@ucalgary.ca> wrote:
>> I am using STATA 9.1. I would like to run a  two-way fixed effect(FE)
>> model using a panel data set constructed from 4 sectors and 43 years,
>> 1958 to 2000. I already know Stata lacks a command to automatically
>> fit two-way fixed effect model. But, I know that if the number of
>> periods is reasonably small, we can fit a tow-way FE model by
>> creating a set of time indicator variables and including all but one
>> in the regression.
>>
>> Since, the number of time periods in my case is large , 43 years vs.
>> 4 industrial sector, then if I follow this method , then I will lose
>> degree of freedom and so following such method  can not be correct.
>
> The obvious alternative is to let -xtreg- take care of the periods and
> add dummies for the industrial sectors. There is nothing magical about
> time that forces you to add that as a set of indicator variables. It is
> usually done that way because it is usually the factor with the
> smallest number of values (think of persons observed over time, you
> usually have many more persons than time periods).
>
> hope this helps,
> Maarten
>
> Ps. you can update free of charge to Stata 9.2 by typing in Stata
> -update all-
>
> -----------------------------------------
> Maarten L. Buis
> Department of Social Research Methodology
> Vrije Universiteit Amsterdam
> Boelelaan 1081
> 1081 HV Amsterdam
> The Netherlands
>
> visiting address:
> Buitenveldertselaan 3 (Metropolitan), room Z434
>
> +31 20 5986715
>
> http://home.fsw.vu.nl/m.buis/
> -----------------------------------------
>
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