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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 11:50:07 -0000

John,

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of 
> John Antonakis
> Sent: Friday, February 12, 2010 9:23 AM
> To: statalist@hsphsun2.harvard.edu
> Subject: Re: st: RE: ivreg versus xtivreg
> 
> Hi Mark:
> 
> I have a similar error; however, the message I get is:
> 
> Warning: 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:
>          number of clusters insufficient to calculate robust 
> covariance 
> matrix
>          singleton dummy variable (dummy with one 1 and N-1 
> 0s or vice 
> versa)
> partial option may address problem.
> 
> Note, I have modeled two dimensions of clustering

Do you mean you're using the new 2-way cluster option?

> (and put all my 
> fixed-effects in the partial option).  Thus, I am correct in 
> saying that 
> the z test for a particular coefficient estimate is still 
> interpretable.

Probably.  I can think of some special cases where things can go wrong (these are what motivated the writing of the warning message).  You might have a small number of clusters (so the asymptotics are dodgy) or a singleton dummy which would mean you couldn't do a test on the significance of the coefficient (of course, you couldn't do that anyway).  But most likely the SEs are OK.

--Mark

> 
> Best,
> J.
> 
> ____________________________________________________
> 
> Prof. John Antonakis, Associate Dean
> Faculty of Business and Economics
> Department of Organizational Behavior
> University of Lausanne
> Internef #618
> CH-1015 Lausanne-Dorigny
> Switzerland
> 
> Tel ++41 (0)21 692-3438
> Fax ++41 (0)21 692-3305
> 
> Faculty page:
> http://www.hec.unil.ch/people/jantonakis
> 
> Personal page:
> http://www.hec.unil.ch/jantonakis
> ____________________________________________________
> 
> 
> 
> On 12.02.2010 09:55, Schaffer, Mark E wrote:
>  > 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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