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RE: st: RE: ivreg versus xtivreg


From   "Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>
To   <statalist@hsphsun2.harvard.edu>
Subject   RE: st: RE: ivreg versus xtivreg
Date   Fri, 12 Feb 2010 08:55:01 -0000

Sara,

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of 
> sara borelli
> Sent: 12 February 2010 07:58
> To: statalist@hsphsun2.harvard.edu
> Cc: Schaffer, Mark E
> Subject: R: st: RE: ivreg versus xtivreg
> 
> Hi Mark,
> I am sorry I did not understand your answer...and I think it 
> is because I I made a typo in writing the command and I did 
> not explain myself clearly. I do NOT include  i.county  in 
> xtivreg2. So I reformulate my question:
> 
> xtivreg2  CRit  (Xit=Wit)  Zit   (state by year fixed effects), 
> fe i(county), cluster(county)
> 
> gives the error message " estimated covariance matrix of 
> moment conditions not of full rank; overidentification 
> statistic not reported, and standard errors and  model tests 
> should be interpreted with caution. Possible causes:  
> singleton dummy variable (dummy with one 1 and N-1 0s or vice 
> versa) fwl option may address problem"
> 
> but the same command xtivreg2 without state by year effects:
> xtivreg2  CRit  (Xit=Wit)  Zit, fe i(county), cluster(county) 
>  does NOT report the above error message
> 
> I do not uderstand why the inclusion of state by year fe 
> caused that error message

I think your explanation in your earlier email is probably right:

> I noticed that 2 states have a number of counties (clusters) lower 
> than the number of years available. By dropping these two states STATA 
> run the xtivreg2 without giving the error message.
> 
> I have read the help file and FAQ and I think something is going with 
> those state by year effects that creates a kind of singleton dummy 
> problem, but I am not sure Any help would be appreciated

And the question is, should you worry about it?  The VCV should still be OK for tests of, say, one parameter at a time.  So long as you are aren't trying to do something that requires a full-rank VCV (like 2-step GMM, or using an overid stat, or joint testing of all the coeffs), you're OK, I think.

Memo to self: calling this an "error" in the output is possibly overstating the issue; maybe "warning" is better.

--Mark

> 
> thank you
> sara
> 
> 
> 
> --- Gio 11/2/10, Schaffer, Mark E <M.E.Schaffer@hw.ac.uk> ha scritto:
> 
> > Da: Schaffer, Mark E <M.E.Schaffer@hw.ac.uk>
> > Oggetto: st: RE: ivreg versus xtivreg
> > A: statalist@hsphsun2.harvard.edu
> > Data: Giovedì 11 febbraio 2010, 19:43
> > Sara,
> > 
> > > -----Original Message-----
> > > From: owner-statalist@hsphsun2.harvard.edu
> > 
> > > [mailto:owner-statalist@hsphsun2.harvard.edu]
> > On Behalf Of
> > > sara borelli
> > > Sent: Thursday, February 11, 2010 6:32 PM
> > > To: statalist@hsphsun2.harvard.edu
> > > Subject: st: ivreg versus xtivreg
> > > 
> > > Dear members,
> > > I am running the following regressions in STATA8.2:
> > > CRit =  a*Xit +  b*Zit  + (state by
> > year fixed effects)  +
> > > (county fixed effects), cluster(county)
> > > 
> > > CRit= crime rate in county i year t
> > > Xit = endogenous regressor
> > > Zit = set of 7 exogenous regressors
> > > state by year fixed effects = interactions between
> > indicators
> > > for each state and year
> > > 
> > > I instrument Xit using Wit
> > > There are 246 counties, 10 states, 8 years I have been 
> running this 
> > > model with two commands
> > > 
> > > xi:   ivreg  CRit
> > (Xit=Wit)  Zit   (state by year fixed
> > > effects)  i.county, cluster(county)
> > > xtivreg2  CRit  (Xit=Wit)
> > Zit   (state by year fixed
> > > effects)  i.county, fe i.(county)
> > cluster(county)
> > > 
> > > the two commands give exactly the same coefficient,
> > and just
> > > slightly different std errors, but after xtivreg2 I
> > get the
> > > following message:
> > > Error: estimated covariance matrix of moment
> > conditions not
> > > of full rank;
> > > overidentification statistic not reported, and
> > standard
> > > errors and       model tests
> > should be interpreted with
> > > caution. Possible causes:  singleton dummy
> > variable (dummy
> > > with one 1 and N-1 0s or vice versa) fwl option may
> > address problem.
> > > 
> > > I noticed that 2 states have a number of counties
> > (clusters)
> > > lower than the number of years available. By dropping
> > these
> > > two states STATA run the xtivreg2 without giving the
> > error message.
> > > 
> > > I have read the help file and FAQ and I think
> > something is
> > > going with those state by year effects that creates a
> > kind of
> > > singleton dummy problem, but I am not sure Any help would be 
> > > appreciated
> > 
> > It's not a problem.
> > 
> > You will note that xtivreg2 does not report the fixed effect dummy 
> > variables.
> > 
> > xi: ivreg2 explicitly includes the dummies, and the 
> coefficients are 
> > reported.
> > 
> > The warning message reported by ivreg2 is triggered by the 
> fact that 
> > there are now many more rows/columns in the VCV, the new, 
> extended VCV 
> > is no longer full rank.
> > 
> > In fact, the coefficients and standard errors for the 
> dummies aren't 
> > consistent anyway (under the usual panel data assumptions - this is 
> > the "incidental parameters problem").  So you really aren't 
> interested 
> > in the extended VCV anyway.
> > 
> > HTH,
> > Mark
> >  
> > > thank you
> > > sara
> > > 
> > > 
> > > 
> > >       
> > > 
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> > > 
> > 
> > 
> > --
> > Heriot-Watt University is a Scottish charity registered 
> under charity 
> > number SC000278.
> > 
> > 
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> 
> 
>       
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-- 
Heriot-Watt University is a Scottish charity
registered under charity number SC000278.


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