Re: st: RE: Two -way clustering (ivreg2/xtivreg2/cgmreg): warning messages, uncomprehensible behavior

[Kuba Bembenek <kuba.bembenek1@gmail.com>]

Hi Mark,

thank you for your answer! I have to correct myself: cgmreg gives me
this message for every regression, no matter if cluster by one or two
dimensions. What is your opinion on this?

Best regards,

Kuba

2014-04-22 0:18 GMT+02:00 Schaffer, Mark E <M.E.Schaffer@hw.ac.uk>:
> Kuba,
>
> -ivreg2- and -cgmreg- are giving you basically the same message.  This problem can happen with 2-way clustering; I think if you follow up some of the literature on this, you'll find some discussion.
>
> The only thing I can suggest is partialling-out all the regressors you aren't interested in, using the partial(.) option of ivreg2/xtivreg2.  Unless you are using the CUE estimator, this leaves the remaining coefficients unchanged, and often solves the problem.
>
> HTH,
> Mark
>
>> -----Original Message-----
>> From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-
>> statalist@hsphsun2.harvard.edu] On Behalf Of Kuba Bembenek
>> Sent: 21 April 2014 20:13
>> To: statalist@hsphsun2.harvard.edu
>> Subject: st: Two -way clustering (ivreg2/xtivreg2/cgmreg): warning messages,
>> uncomprehensible behavior
>>
>> Dear Statalists,
>>
>> what I am doing:
>>
>> I am estimating a panel model via First Difference estimator. I either
>> use ivreg2 and take the first differences myself, or xtivreg2, fd. The
>> panal ist unbalanced and consists of seven sectors across 24 countries
>> ( 168 panel units) observed over 33 years. In the model, I include
>> seven industry specific trends (after FD: industry specific dummies)
>> and year dummies.
>>
>> The problem that occurs:
>>
>> In this model I want to cluster across industries and countries. I
>> almost always get the message "Warning: estimated covariance matrix of
>> moment conditions not of full rank.model tests should be interpreted
>> with caution." This even the case when the number of clusters exceeds
>> the number of regressors to be estimated (in both cluster dimensions).
>> Furthermore no singleton dummy variable is included
>>
>>
>> Of course due to the number of time dummies etc., the number of
>> clusters would not be sufficient in both dimensions if I just used the
>> identification variables for countries and industries. To evade this
>> problem,  I generate id variables for three year intervals,four year
>> intervals, or each individual year to interact them (egen ..
>> =group(threeyear country) etc.) with the country and industry
>> indicator. The only combination where two-way custering works is the
>> industry*year and country*year case. In all the other cases I get the
>> error message above. However if I just cluster over one dimension,
>> e.g.  fouryearid*industry or threeyear*country, it works. This
>> confuses me as to my knowledge the numbers of coefficients that can be
>> jointly tested is restrained by the "cluster dimension" with the
>> fewest number of clusters.
>>
>> Does anybody have an idea what could be happening here? I would be
>> very thankful for some help!
>>
>> Best Regards
>>
>> Kuba Bembenek
>>
>>
>> additional info:
>>
>> I also tried the cgmreg command  (described here:
>> https://www.econstor.eu/dspace/bitstream/10419/58397/1/609322079.pdf)
>> and for every estimation, also for the year*country and
>> industry*clusters, I get the following message:
>>
>> " Raw estimated variance matrix was non-positive semi-definite.
>> -cgmreg- is replacing any/all negative eigenvalues with 0"
>> *
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>
>
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