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From |
"Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk> |

To |
<statalist@hsphsun2.harvard.edu> |

Subject |
st: RE: Clustered standard errors in -xtreg- with dfadj |

Date |
Sun, 8 Mar 2009 19:06:34 -0000 |

Lisa, > -----Original Message----- > From: owner-statalist@hsphsun2.harvard.edu > [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of > Lisa M. Powell > Sent: 08 March 2009 14:34 > To: statalist@hsphsun2.harvard.edu > Subject: st: Clustered standard errors in -xtreg- with dfadj > > Dear List members, > > I would like to follow up on some of your email exchanges > (see email exchange at the > bottom of this email) regarding the inclusion > of the dfadj command when clustering standard errors in an FE > panel model. > > I have an unbalanced sample of individuals over 4 waves of data. I > include county level variables in the analyses which are my key > variables of interest and I would like to cluster on the county id. > Given that individuals can move over time, they are not fully nested > within the clusters (the counties). > > In STATA 10, if I try to run: xtreg outcome $econ5, i(caseid) > vce(cluster fip) fe; > then I get the message of: panels are not nested within > clusters r(498); > which is indeed the case. > > I gather that in earlier version of STATA such as 8.0 where one did > not have to specify nonest using the cluster command even when the > panels were not nested that STATA as the default implemented > dfadj ? Is that correct? I can't answer that offhand but it should be clear in the Stata 8 manuals. Or you can compare Stata 8 and Stata 10 (with -nonest-) output and see if they're the same. > Therefore, I have added the option "nonest". > (xtreg outcome $econ5, i(caseid) vce(cluster fip) nonest fe) > > If I additionally add the option "dfadj" then as expected my standard > errors increase. > (xtreg outcome $econ5, i(caseid) vce(cluster fip) nonest dfadj fe) > > In another post, a few years ago, Mark Schaffer responded as > follows which was very helpful: > The problem arises when the panels cut across clusters. Some dof > adjustment is needed, but what should it be? I don't know, > and I haven't > seen any paper that describes exactly what it should be. When writing > -xtivreg2-, I opted simply for the program to exit with > error. Official > -xtivreg- now has the -nonest- and -dfadj- options; these > didn't exist > when I wrote -xtivreg2-. You'll see that they allow you to go between > the extremes of no dof adjustment (which will give you SEs > that are too > small) and a full dof adjustment (which will give you > "conservative" SEs > that are on the large side). > > My question now: Is there a "partial" adjustment that can be done? When this first came up a few years ago, I had a brief correspondence with, I think, David Drukker and Vince Wiggins from StataCorp (I think it was "and" but it might have been "or"). As I recall, the problem is that your question hasn't been answered in the theoretical literature, and deriving an answer would be hard. Maybe someone has tackled this problem by now, but I haven't seen anything. The only thing I can suggest is to do a Monte Carlo simulation of your problem and see what sort of adjustment is needed to make the cluster-robust VCV estimator behave reasonably. (Or possibly, as you suggest, try bootstrapping.) --Mark > Alternatively, is there a way to bootstrap the standard > errors to account for the non-nested county clusters? > > Any further advice that you could offer would be much appreciated. > > many thanks, > Lisa > > > > * > *From* "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk > <mailto:M.E.Schaffer@hw.ac.uk>> > *To* <statalist@hsphsun2.harvard.edu > <mailto:statalist@hsphsun2.harvard.edu>> > *Subject* RE: st: Clustered standard errors in -xtreg- > *Date* Thu, 28 Dec 2006 13:55:02 -0000 > > -------------------------------------------------------------- > ---------- > > Thomas, > > > -----Original Message----- > > From: owner-statalist@hsphsun2.harvard.edu > > [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of > > Thomas Corneli?en > > Sent: 28 December 2006 12:29 > > To: statalist@hsphsun2.harvard.edu > > Subject: Re: st: Clustered standard errors in -xtreg- > > > > > Thomas Cornelissen wrote: > > > > > > > >> I am comparing two different ways of estimating a linear > > > >> fixed-effects > > > >> model: > > > >> > > > >> Method 1: Use -regress- and include dummy variables > for the panels. > > > >> Method 2: Use -xtreg, fe-. > > > >> > > > >> These two deliver exactly the same estimates of > coefficients and > > > >> their standard errors (if I do not cluster the > standard errors). > > > >> > > > >> However, if I use the option -cluster- in order to get > clustered > > > >> standard errors (clustered on the panel ID), I get different > > > >> results with the two ways of estimating the model. > > > >> > > > >> Why is this ? > > <snip> > > > Is there a rationale for not counting the absorbed regressors > > when standard errors are clustered ? > > > > Haven't degrees of freedom been used for absorbing the > > variables and therefore the absorbed regressors should always > > be counted as well? > > The short answer to your first question is "yes" - you don't have to > include the number of absorbed regressors in a degrees of freedom > adjustment for the cluster-robust covariance estimator. The slightly > longer answer is to appeal to authority, e.g., Wooldridge's 2002 > textbook. The cluster-robust covariance estimator is given in eqn. > 10.59 on p. 275, and you will see there is no dof adjustment. The > standard covariance estimator is discussed on pp. 271-2, and the dof > adjustment is given explicit attention. > > This is why the more recent versions of Stata's official -xtreg- have > the -nonest- and -dfadj- options for fixed effects estimation. > > -nonest- relates to nesting panels within clusters; the > cluster-robust > cov estimator doesn't require a dof adjustment but only if panels are > nested within clusters. If panels are not nested within > clusters, then > some kind of dof adjustment is needed. > > -dfadj- will impose the full dof adjustment on the cluster-robust cov > estimator. If panels are nested within clusters, then you > would never > need to use this. But since some kind of dof adjustment is needed if > panels are not nested within clusters, you can use this > option to go all > the way and impose the full dof adjustment. > > Cheers, > Mark > > Prof. Mark Schaffer > Director, CERT > Department of Economics > School of Management & Languages > Heriot-Watt University, Edinburgh EH14 4AS > tel +44-131-451-3494 / fax +44-131-451-3296 > email: m.e.schaffer@hw.ac.uk > web: http://www.sml.hw.ac.uk/ecomes > > > > > -- > Lisa M. Powell, PhD > Research Associate Professor > Senior Research Scientist > Institute for Health Research and Policy > University of Illinois at Chicago > tel: 312-413-8468 > fax: 312-996-0065 > > * > * 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/ > -- Heriot-Watt University is a Scottish charity registered under charity number SC000278. * * 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/

**References**:**st: Clustered standard errors in -xtreg- with dfadj***From:*"Lisa M. Powell" <powelll@uic.edu>

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