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From |
Nishant Tharani <nishant.tharani@gmail.com> |

To |
statalist@hsphsun2.harvard.edu |

Subject |
st: Choosing standard error form to correct for serial correlation in panel data |

Date |
Tue, 27 Mar 2012 23:20:08 +0100 |

Dear Statalist-ers, Thank you for your consideration of my question. My question is about the appropriate choice of standard errors to use in a panel data context to correct for serial correlation. I'm performing a fixed effects regression (xtreg, fe) with T=14 and N=13, and the dataset is strongly balanced. I've detected serial correlation using the 'xtserial' test. My choice at the moment is between clustering and using Newey-West standard errors, both of which correct for correlation within a panel over time if I understand correctly. From what I've gathered, clustering doesn't require the specification of any autocorrelation structure in particular, and is ideal for panel data in which N tends to infinity (N > T). Newey-West errors, on the other hand, require one to specify the number of maximum lags of autocorrelation in the model, and are used more for T > N. I'm unsure as to which is the appropriate choice given that T and N are roughly equal in my model. I'm tempted to use the Newey-West standard errors as my N doesn't seem large enough for clustering to be consistent - would this be correct? If so, is there a standard number of lags that would be appropriate for annual data? Another option is to report results with both - I've tested my model with both types and the results are qualitatively the same. Many thanks, Nishant Tharani (Using Stata 11.1 on Windows / OSX) * * 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/

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