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st: Re: Two-Way FE Estimation

From   Maarten buis <[email protected]>
To   stata list <[email protected]>
Subject   st: Re: Two-Way FE Estimation
Date   Wed, 13 Aug 2008 11:00:17 +0100 (BST)

--- Asgar Khademvatani wrote to me privately:
> You meant, if I have 4 industry in my panel data set, then a two-way
> FE can be implemented as:
>  xtreg Y X d1 d2 d3, fe    where d1 d2 d3 are industry dummies and 
> -xtreg- take cares of time periods? If so, Do not you think this is a
> double accounting for a one-way fixed effects without taking care of 
> time periods? Please advise

First of all, it is better not to respond of list. This is discussed in
section 5 of the Statalist FAQ:

There are two ways of thinking about what you want: either you want to
control for industry and period, or you want to control for industry,
period, and the interaction between industry and period. Which one you
want is a subtantive choice and can only be made by the researcher.
What I proposed is the first option, and that boils down to the
pseudo-code you have given above (assuming you -xtset- on period
first). For the alternative you create a new id variable that is the
combination of period and time, and use that in xtreg. In pseudo-code:

egen id = group(period industry)
xtset id
xtreg Y X, fe

Hope this helps,

Maarten L. Buis
Department of Social Research Methodology
Vrije Universiteit Amsterdam
Boelelaan 1081
1081 HV Amsterdam
The Netherlands

visiting address:
Buitenveldertselaan 3 (Metropolitan), room Z434

+31 20 5986715

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