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st: RE: re: ivreg2, cluster vs. state fixed effects


From   "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>
To   <statalist@hsphsun2.harvard.edu>
Subject   st: RE: re: ivreg2, cluster vs. state fixed effects
Date   Thu, 11 Feb 2010 16:21:49 -0000

Nirina,

As Kit says, the new ivreg2 supports 2-level clustering.  But do read
the help file and/or the referenced papers (Cameron et. al and Thompson
- full details in the references section of ivreg2 help) and make sure
it does what you want and that you have the data to do it.

In particular, the asymptotics for 2-level clustering requires that the
numbers of clusters go off to infinity in both dimensions.

Thus, in your case, you want the number of states to go off to infinity,
and current practice seems to be that 50 is far enough along the way to
infinity to get decent results.

But you also need the number of years to go off to infinity.  The papers
cited above have some guidance on what this means in practice, i.e., how
many years of data do you need in order to get decent results.

HTH,
Mark

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Kit Baum
> Sent: Thursday, February 11, 2010 1:21 PM
> To: statalist@hsphsun2.harvard.edu
> Subject: st: re: ivreg2, cluster vs. state fixed effects
> 
> <>
> Nirina said
> 
> I am thinking of clustering the standard errors on state, so am I
> right to just run the following?
> 
> ivreg2 y (x1=z) x2, cluster (state)
> 
> I tried to put under cluster state dummies but  I realized that I can
> only put one variable under cluster.
> 
> 
> As detailed by Mark Schaffer's post, -ivreg2- from SSC now 
> supports two-way clustering, typically along unit and time dimensions.
> 
> 
> Kit Baum   |   Boston College Economics & DIW Berlin   |   
> http://ideas.repec.org/e/pba1.html
>                               An Introduction to Stata 
> Programming  |   http://www.stata-press.com/books/isp.html
>    An Introduction to Modern Econometrics Using Stata  |   
> http://www.stata-press.com/books/imeus.html
> 
> 
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