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st: Fixed effects and standard errors and two-way clustered SE


From   startistiker <diudas1@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   st: Fixed effects and standard errors and two-way clustered SE
Date   Wed, 8 Sep 2010 01:24:33 -0700 (PDT)

I have a question regarding standard errors in a two-way fixed effects
covariance model.

I'm using panel data (firm (52 obs.), year (14 obs.)) which is unbalanced
(some of the firms have missing firm-years) in a two-way fixed effects model
(firm and year dummies).

Eq. (1): Y = b1*X1 + b2*X2 + b3*FE(firm)+b4*FE(year)+e
(intercept is suppressed)

All variables are scaled, the first (b1) is a scaled intercept (1/scale). I
want to test the effect of a treatment by adding a dummy (treatment=1,
otherwise 0) for the years a firm is affected by the treatment:

Eq. (2): Y = b1*X1 + b2*X2 + b3*FE(firm)+b4*FE(year)+b5*treatment+e
(intercept is suppressed)

The whole sample consists of 220 treatment years and 400 non-treatment
years. Every firm has at least on treatment and one non-treatment year.

Question: Now I am not sure about the correct kind of standard errors I
should use in my t-statistics? 

So far I tried the standard t-test, Huber/White standard errors
(,cluster(mark) command) and two-way clustered standard errors (Cameron,
Gelbach, and Miller; cgmreg in Stata). 

Question: Which one is recommandable and why (in context of the two-way FE
model)? 
Results are, as expected, much weaker by using the latter.

Question: To you have general recommendations what to test in this kind of
approach or to what i have to pay special attention?

Tests I have also done so far:
- Hausman between FE and RE -> FE recommended (Chi2 11.88)
- F-Test of year dummies -> inclusion recommended (F-Test 2.99)
- Wooldridge test for autocorrelation -> AR exists (F-Test 11.590)
- Breusch-Pagan for heteroskedasticity -> Het exists (F-Test 77.93)

Question: Regarding the Hausman test: should I run it with the treatment
dummies (Eq. 2) or without (Eq. 1)? At the moment the results for the
Hausman test above are with usual intercept and without the scaled intercept
of Eq. 1, is that ok? Can anybody explain to me, why I need a scaled
intercept? (used it because the original model used it, but more or less
without explaining).

Thank you! 
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