Lloyd,
> -----Original Message-----
> From: [email protected]
> [mailto:[email protected]] On Behalf Of
> Lloyd Dumont
> Sent: 31 January 2008 00:36
> To: [email protected]
> Subject: st: bootstrapping RE with small number of clusters
>
> Hello, everyone. As many of you know, I have been estimating
> (using -xtreg- and the cluster option) a random effects model
> on an unbalanced panel in which there are about 15 clusters,
> most observed about 15 times. That is, this is not the
> typical situation in which in which the number of clusters is
> significantly larger than the number of time periods.
>
> Two concerns:
>
> First, I am concerned that FE is more appropriate than RE.
> That is a problem, because just about all the regressors I
> care about are time constant. (I think this may mean "tough
> luck" for me, I realize.)
You're probably in "tough luck" land, I'm afraid.
The coefficients on the time-invariant regressors rely entirely on the
cross-unit variation. In effect, you have 15 observations for
estimating however many such coefficients you've got. Even if there's
only one, 15-1=14 degrees of freedom is not going to be very convincing.
If the #regressors>15 then RE is not possible at all.
> Second, I am concerned with the potential for small sample
> bias in my variance estimates. I thought a good way to deal
> with this would be to bootstrap my standard errors (using
> -xtreg- , the cluster option, and the vce(bootstrap)
> options). Now, I am a novice with the bootstrap, but my
> initial attempts yielded confidence intervals, not
> surprisingly, far less favorable than those yielded under the
> normality assumption. (This did not improve much as I
> increased the number of reps.)
>
> So, does that just further demonstrate that my RE estimates
> are inconsistent and that there is little I can do about it?
Sort of. The problem isn't inconsistency, which is an asymptotic
concept. That is, estimates are consistent as something - here, the
number of panel units i.e. clusters - goes off to infinity. The problem
is, rather, that 15 is not very far on the way to infinity.
Sorry I can't be more constructive.
--Mark
Prof. Mark Schaffer
Director, CERT
Department of Economics
School of Management & Languages
Heriot-Watt University, Edinburgh EH14 4AS
tel +44-131-451-3494 / fax +44-131-451-3296
email: [email protected]
web: http://www.sml.hw.ac.uk/ecomes
>
> Or, is there a way to use the bootstrap to better determine
> the actual/observed error structure, and then re-estimate the
> model by imposing this "revealed"
> structure upon it?
>
> Thank you for your thoughts/suggestions. Lloyd Dumont
>
>
>
>
>
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