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st: RE: two-way fixed effects
1)
. egen dummy = group(firm year)
. xi: reg quantity price i.dummy
and 2)
. xi: reg quantity price i.firm i.year
These two commands don't generate equivalent design matrixes; the egen
command incorporates interaction effects between firm and year, while
the second model does not include them. Beyond that, I can't help you:
the use of interaction terms should come from scientific knowledge. (in
my opinion, of course!)
Hope that helps!
Eric
-----Original Message-----
From: [email protected]
[mailto:[email protected]] On Behalf Of Martin Wang
Sent: Tuesday, June 24, 2008 12:30 PM
To: statalist
Subject: st: two-way fixed effects
Dear Statalist,
I have an old question, which command should I use for two-way fixed
effects? For example if I want to control both year and firm fixed
effects. I find two methods as follows:
1)
. egen dummy = group(firm year)
. xi: reg quantity price i.dummy
and 2)
. xi: reg quantity price i.firm i.year
I find the two methods gave the same estimation of coefficient, but
method 2) seems to yield a large t-stat. Could someone please advise
which one should I use?
Many thanks!
Martin
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