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Re: Re: st: Direction of the effect of the cluster command on the standard error depends on the inclusion of a control variable


From   Christopher Baum <kit.baum@bc.edu>
To   "statalist@hsphsun2.harvard.edu" <statalist@hsphsun2.harvard.edu>
Subject   Re: Re: st: Direction of the effect of the cluster command on the standard error depends on the inclusion of a control variable
Date   Thu, 6 Jan 2011 08:20:45 -0500

<>
On Jan 6, 2011, at 2:33 AM, Stas wrote:

> 
> There are terrible small sample biases exhibited by -robust- and
> - -cluster()- standard errors with small # of observations and clusters,
> respectively. As was noted by Justina, four clusters is SO far away
> from asymptotics that I wouldn't even consider the clustered standard
> errors in your situation.

Just to add one thing to Stas', Justina's and Austin's replies... It is useful to think of the cluster-robust VCE estimator generating 'super-observations' , one per cluster. Thus with 4 clusters, you essentially are estimating a model with N=4 to compute the VCE. Some official Stata commands will let you do that, even when the number of coefficients > N. Baum-Schaffer-Stillman -ivreg2- (on SSC) will flag that as a problem, as it does not make much sense to do so. But one of the reasons that a small number of clusters may yield horrible results is that it represents estimation with a very small sample.

Kit



Kit Baum   |   Boston College Economics & DIW Berlin   |   http://ideas.repec.org/e/pba1.html
                              An Introduction to Stata Programming  |   http://www.stata-press.com/books/isp.html
   An Introduction to Modern Econometrics Using Stata  |   http://www.stata-press.com/books/imeus.html


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