Actually, either approach is valid (depending on the assumptions one
makes), and in principle can even be used at the same time. See, e.g.,
Arellano in the Oxford Bulletin of Economics and Statistics, 49:4 (1987),
who proposed using the cluster-robust approach to the fixed effects
estimator. A more recent source is Wooldridge, Econometric Analysis of
Cross Section and Panel Data (2002), p. 193.
Curiously, as of version 7, Stata's xtreg didn't have a cluster option. I
don't know if this is true in version 8.
--Mark
Quoting Richard Goldstein <[email protected]>:
> Use the -xt- commands for time series-cross sectional
> data, not the cluster option.
>
> Rich Goldstein
>
> Dr Sumon Bhaumik wrote:
> >
> > Hi everyone,
> >
> > I need help with a Stata command. In the "regress" command,
> there
> > is an option "cluster." Apparently, it is used when the data is
> > such that some of the observations may be correlated. For
> example,
> > if I estimate a specification using time series-cross section
> > pooled data of n banks and t years. Since the portfolios and
> many
> > of the financial ratios of each of the banks, used in the
> > specification, may be correlated across the t years, it seems to
> > me that I should use the "cluster" option. Am I mistaken? What
> > exactly is the econometrics of the "cluster" option? Thanks!
> >
> > Regards,
> >
> > Sumon
> *
> * For searches and help try:
> * http://www.stata.com/support/faqs/res/findit.html
> * http://www.stata.com/support/statalist/faq
> * http://www.ats.ucla.edu/stat/stata/
>
Prof. Mark Schaffer
Director, CERT
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS
tel +44-131-451-3494 / fax +44-131-451-3008
email: [email protected]
web: http://www.sml.hw.ac.uk/ecomes
________________________________________________________________
DISCLAIMER:
This e-mail and any files transmitted with it are confidential
and intended solely for the use of the individual or entity to
whom it is addressed. If you are not the intended recipient
you are prohibited from using any of the information contained
in this e-mail. In such a case, please destroy all copies in
your possession and notify the sender by reply e-mail. Heriot
Watt University does not accept liability or responsibility
for changes made to this e-mail after it was sent, or for
viruses transmitted through this e-mail. Opinions, comments,
conclusions and other information in this e-mail that do not
relate to the official business of Heriot Watt University are
not endorsed by it.
________________________________________________________________
*
* For searches and help try:
* http://www.stata.com/support/faqs/res/findit.html
* http://www.stata.com/support/statalist/faq
* http://www.ats.ucla.edu/stat/stata/
