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From |
Augusto Cadenas <aug.cadenas@googlemail.com> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
st: ivreg2/xtivreg2, clustering, and the covariance matrix of moment conditions |

Date |
Wed, 18 Feb 2009 16:05:11 -0500 |

Dear all, when working with one of my panel datasets with -xtivreg2-, I get the well-known error message: *** Warning: estimated covariance matrix of moment conditions not of full rank. standard errors and model tests should be interpreted with caution. Possible causes: number of clusters insufficient to calculate robust covariance matrix singleton dummy variable (dummy with one 1 and N-1 0s or vice versa) partial option may address problem. *** I saw this error message being discussed often here, but I was wondering if there is a simple rule that explains when this problem occurs. Can we relate it simply to the number of observations, clusters, regressors of the model? For example, I have N=8, T=12, a balanced panel (N*T=96), and want to have one cluster for each state (N), so M=8. The model I estimate has time and state fixed effects and only one regressor beyond that, so 1+7+11 coefficients to estimate. Is that because 19>8? The other thing I'm wondering about is: why can Stata still compute standard errors in this case (even though they "should be interpreted with caution"), but can't compute the overid test in the case in which I have more than one instrument? (I tried both the perfectly identified and the overid case). Thanks for your suggestions. AC * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**st: RE: ivreg2/xtivreg2, clustering, and the covariance matrix of moment conditions***From:*"Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>

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