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Re: st: Clustering Standard Errors.


From   Nils Braakmann <[email protected]>
To   [email protected]
Subject   Re: st: Clustering Standard Errors.
Date   Tue, 15 Jun 2010 09:11:18 +0200

Ah, thanks Austin. I didn't know that.

On Mon, Jun 14, 2010 at 11:25 PM, Austin Nichols
<[email protected]> wrote:
> Nils Braakmann <[email protected]> :
> No, not the same. The group() approach uses a much more restrictive
> assumption about independence of errors, and that VCE is actually an
> ingredient of the two-way cluster-robust VCE.  Quoting from
> http://fmwww.bc.edu/repec/bocode/i/ivreg2.html :
>
> The two-way clustered variance-covariance estimator is
> calculated using 3 different VCEs: one clustered on varname1, the second
> clustered on varname2, and the third clustered on the intersection of varname1
> and varname2.  Cameron et al. (2006, pp. 8-9) discuss two possible small-sample
> adjustments using the number of clusters in each category.  cgmreg uses one
> method (adjusting the 3 VCEs separately based on the number of clusters in the
> categories VCE clusters on); ivreg2 uses the second (adjusting the final 2-way
> cluster-robust VCE using the smaller of the two numbers of clusters).
>
> Whether or not you should use one approach or another depends on many
> things, including your own most plausible theories about independence
> of errors and the number of clusters in each dimension; see
> http://www.stata.com/meeting/boston10/abstracts.html#baum
>
> On Mon, Jun 14, 2010 at 3:19 PM, Nils Braakmann
> <[email protected]> wrote:
>> Hi Natasha,
>>
>> I guess the two approaches should give identical results (although I'm
>> not sure how two-way clustering is implemented in e.g. xtivreg2). The
>> -egen ... group()- approach essentially creates all possible
>> combinations of (in your case) industry and region and clusters on
>> that. In my understanding, two way clustering should do the same.
>>
>> Best,
>> Nils
>>
>> On Mon, Jun 14, 2010 at 4:50 PM, natasha agarwal
>> <[email protected]> wrote:
>>> Thanks Nils.
>>>
>>> How would you know whether you need to do two-way clustering or
>>> generate a cluster variable?
>>>
>>> Thanks
>>> Natasha
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