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RE: st: Stata 11 Random Effects--Std. Errors


From   "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>
To   <statalist@hsphsun2.harvard.edu>
Subject   RE: st: Stata 11 Random Effects--Std. Errors
Date   Wed, 19 Aug 2009 19:19:48 +0100

This is different from the reason provided by Stock-Watson (2008) for
FEs (see earlier in the thread).

Stock and Watson show that for the fixed effects estimator, the usual
robust VCV - i.e., robust but not cluster-robust - is not consistent.
It's another example of the "incidental parameters" problem.  This is
why Stata 10 won't report it under any circumstances, including version
control.

My suspicion was that this might carry over to the usual robust VCV for
the random effects estimator and that this was why it was dropped in
Stata 11, but apparently not.   Using cluster-robust with RE is
apparently just following standard practice in the literature.

If so, though, then I think I'd prefer to see non-cluster robust SEs
available with the RE estimator through an option rather than version
control.

--Mark (left scratching his head and wondering why robust and cluster
robust are both kosher for the RE estimator, only cluster-robust is
kosher for the FE estimator, Stata's PA estimator allows only robust but
not cluster-robust, and Stata's MLE estimator allows neither)


> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of DE 
> SOUZA Eric
> Sent: 19 August 2009 18:37
> To: 'statalist@hsphsun2.harvard.edu'
> Subject: RE: st: Stata 11 Random Effects--Std. Errors
> 
> To add more detail:
> Two of the assumptions underlying the random effects model are that:
> 1. the unobservable effects are not correlated with the 
> explanatory variables 2. the residuals have the random 
> effects structure The second assumption is not required for 
> consistency.
> Wooldridge's argument is: then why impose it. "With fixed T 
> and large N asymptotics, we lose nothing in using robust 
> standard errors and test statistics even if [the random 
> effects error structure] holds".
> 
> Eric 
> 
> 
> Eric de Souza
> College of Europe
> Brugge (Bruges), Belgium
> http://www.coleurope.eu
> 
> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of 
> David M. Drukker
> Sent: 19 August 2009 19:04
> To: statalist@hsphsun2.harvard.edu
> Subject: RE: st: Stata 11 Random Effects--Std. Errors
> 
> Continuing the thread about why -xtreg .., re vce(robust)- 
> changed its meaning between Stata 10 and Stata 11, Mark E 
> Schaffer <M.E.Schaffer@hw.ac.uk> asked for a citation.
> 
> Wooldridge (2002, section 10.4.2) recommends the new approach 
> of having
> -vce(robust)- mean -vce(cluster panelvar)-.
> 
> When we first offered the -vce(robust)- and -vce(cluster 
> clustvar)- on -xtreg, re-, we wanted to offer users the 
> flexibility to use either estimator.  We had Monte Carlo 
> simulations showing that there are data generating processes 
> for which -vce(robust)- performs quite well, so we allowed 
> users to choose.
> 
> Since we first offered these options, the literature has 
> focused on always using -vce(cluster panelvar)- to obtain a 
> "robust" estimator for -xtreg, re-.  We made the change 
> because the new method is what users now expect and it offers 
> additional generality.
> 
>    David
>    --ddrukker@stata.com
> 
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