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st: Two-Way Fixed Effect Estimation

From   Asgar Khademvatani <[email protected]>
To   [email protected]
Subject   st: Two-Way Fixed Effect Estimation
Date   Tue, 12 Aug 2008 23:48:17 -0600

Dear Friends,

I am using STATA 9.1. I would like to run a two-way fixed effect(FE) model using a panel data set constructed from 4 sectors and 43 years, 1958 to 2000. I already know Stata lacks a command to automatically fit two-way fixed effect model. But, I know that if the number of periods is reasonably small, we can fit a tow-way FE model by creating a set of time indicator variables and including all but one in the regression. Since, the number of time periods in my case is large , 43 years vs. 4 industrial sector, then if I follow this method , then I will lose degree of freedom and so following such method can not be correct. Having said this, I got two questions as follows;

(1) Since I have a panel data set constructed from 43 years and 4 sector, is the two-way FE model a feasible and appropriate method of estimation for such specific panel data set? If yes, then (2) I am wondering whether is there any other alternative way to run two-way FE model in Stata considering my panel data set?

I look forward to hearing from you.

Thank you All

Asgar Khademvatani
University of Calgary, Canada
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