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From |
Austin Nichols <austinnichols@gmail.com> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
Re: st: Stata 11 Random Effects--Std. Errors |

Date |
Sat, 22 Aug 2009 09:13:20 -0400 |

For example: clear all prog reclr, rclass version 10.1 drawnorm x1-x10 v, n(50) clear forv i=1/10 { replace x`i'=exp(x`i') } g id=_n expand 20 g e=rnormal() bys id: replace e=e[_n-1]/2+e/2 if _n>1 g y=(x1+x2+x3+x4+x5)/5+v+e xtreg y x1-x10, cl(id) i(id) re test x1 x2 x3 x4 x5 return scalar c1=r(p)<.05 test x6 x7 x8 x9 x10 return scalar c0=r(p)<.05 xtreg y x1-x10, r i(id) re test x1 x2 x3 x4 x5 return scalar r1=r(p)<.05 test x6 x7 x8 x9 x10 return scalar r0=r(p)<.05 eret clear end simul, seed(1) rep(10000): reclr su This shows rejection rates for RE of 9% for a nominal 5% alpha with het-robust SEs but 41% with cluster-robust SEs. Here's another example, where my preferred default does not do so well: clear all prog reclr, rclass version 10.1 drawnorm x1-x10 v, n(50) clear g id=_n expand 20 forv i=1/10 { replace x`i'=exp(x`i'*4/5+rnormal()/5) } g e=rnormal() bys id: replace e=e[_n-1]*4/5+e/5 if _n>1 g y=(x1+x2+x3+x4+x5)/5+v+e xtreg y x1-x10, cl(id) i(id) re test x1 x2 x3 x4 x5 return scalar c1=r(p)<.05 test x6 x7 x8 x9 x10 return scalar c0=r(p)<.05 xtreg y x1-x10, r i(id) re test x1 x2 x3 x4 x5 return scalar r1=r(p)<.05 test x6 x7 x8 x9 x10 return scalar r0=r(p)<.05 xtreg y x1-x10, i(id) re test x1 x2 x3 x4 x5 return scalar o1=r(p)<.05 test x6 x7 x8 x9 x10 return scalar o0=r(p)<.05 xtreg y x1-x10, cl(id) i(id) fe test x1 x2 x3 x4 x5 return scalar fec1=r(p)<.05 test x6 x7 x8 x9 x10 return scalar fec0=r(p)<.05 xtreg y x1-x10, i(id) fe test x1 x2 x3 x4 x5 return scalar feo1=r(p)<.05 test x6 x7 x8 x9 x10 return scalar feo0=r(p)<.05 eret clear end simul, seed(1) rep(10000): reclr su On Fri, Aug 21, 2009 at 11:00 AM, Austin Nichols<austinnichols@gmail.com> wrote: > Mark-- > I concur that getting het-robust SEs should still be possible with > -xtreg, re-. I wonder, for example, about the relative performance in > smallish samples where T and N are both under 100 and there are many > explanatory variables. The cluster-robust SE will offer uniformly > better performance as N goes to infinity, I suspect, but in some kinds > of small finite samples the het-robust SE may be better, and users > should have that option IMHO. Unless there is strong evidence that > cluster-robust is always better than het-robust in RE models, which I > have not seen. On the other hand, I would make cluster-robust SEs the > default (for both FE and RE), instead of -vce(conventional)-, and make > users spell out vce(conventional) [literally] to get that inferior > estimator. Of course, I would also make -fe- the default for -xtreg- > in Stata 11.1, and make users spell out -re- to get that (more often > inferior) estimator. Why not help people make good choices with the > defaults? (I would also make het-robust SEs the default for -regress- > and make folks specify vce(ols) for the old default.) > > On Wed, Aug 19, 2009 at 2:19 PM, Schaffer, Mark E<M.E.Schaffer@hw.ac.uk> wrote: >> 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 >>> > * * 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**:**Re: st: Stata 11 Random Effects--Std. Errors***From:*"David M. Drukker" <ddrukker@stata.com>

**RE: st: Stata 11 Random Effects--Std. Errors***From:*"Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>

**References**:**RE: st: Stata 11 Random Effects--Std. Errors***From:*"David M. Drukker" <ddrukker@stata.com>

**RE: st: Stata 11 Random Effects--Std. Errors***From:*DE SOUZA Eric <eric.desouza@coleurope.eu>

**RE: st: Stata 11 Random Effects--Std. Errors***From:*"Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>

**Re: st: Stata 11 Random Effects--Std. Errors***From:*Austin Nichols <austinnichols@gmail.com>

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