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From |
"Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk> |

To |
<statalist@hsphsun2.harvard.edu> |

Subject |
RE: st: RE: xtscc and small samples (equal size T and N) |

Date |
Mon, 19 Sep 2011 22:50:32 +0100 |

Christina, FWIW, I'd be reluctant to follow Sami's advice, for the same reasons I gave earlier, and in spite of my soft spot for recommendations involving -ivreg2-. Two-way clustering requires asymptotics where both T->infinity and N->infinity. 11 is not very far on the way to infinity no matter how you slice it. What about a simple 2-way fixed effects model with both group fixed effects and time dummies? You have 121 observations, and you're losing 22 dofs to the FEs, so it's not tooooo bad.... --Mark > -----Original Message----- > From: owner-statalist@hsphsun2.harvard.edu > [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of > Sami Alameen > Sent: 19 September 2011 19:46 > To: statalist@hsphsun2.harvard.edu > Subject: Re: st: RE: xtscc and small samples (equal size T and N) > > It's up to you but I would use -ivreg2- with two-way > clustering as follow: > > ssc install ivreg2, replace > > use grunfeld > > xi, noomit: ivreg2 invest kstock mvalue i.company, noconst > cluster(company year) > > And igore the irrelevant segments of the output! > > Sami > > On Mon, Sep 19, 2011 at 8:24 PM, christina sakali > <christina.sakali@googlemail.com> wrote: > > Dear Mark, thanks for the response. > > > > The first two specifications differ only in respect to one > explanatory > > variable, while the third specification includes both these two > > variables from the previous two specifications. > > > > After estimating them with xtreg ..., fe, I checked for serial and > > cross-sectional correlation (using -xtregar, ... fe lbi- and xtcsd). > > The results indicated NO serial correlation, but the presence of > > cross-sectional dependence. > > > > Moreover, I read in Hoechle (SJ, 2007, p.17) that the > Driscoll-Kraay > > SE have better small sample properties than other more commonly > > employed estimators when cross-sectional dependence is > present, that > > is why I chose to estimate my model with xtscc. > > > > If both xtscc and cluster are not appropriate for a small > sample like > > mine, then what is the appropriate estimator, when one needs to > > account for the presence of cross-sectional dependence? Or should I > > just use -xtreg, ... fe robust-, which only accounts for > > heteroscedasticity? > > > > Any suggestions are greatly appreciated. > > > > On 19 September 2011 19:38, Schaffer, Mark E > <M.E.Schaffer@hw.ac.uk> wrote: > >> Christina, > >> > >> You don't tell us how the 3 specifications differ. It's hard to > >> offer explanations for the differences in results without > this information. > >> > >> That said, it looks like you have a basic problem here. > >> > >> The cluster-robust approach gives you SEs that are robust to > >> arbitrary within-group autocorrelation. It relies on > asymptotics in > >> which the number of clusters N goes off to infinity. 11 > is not very > >> far on the way to infinity. > >> > >> The Driscoll-Kraay SEs implemented by -xtscc- apply the > kernel-robust > >> approach (e.g., Newey-West) to panel data. It gives you > SEs that are > >> robust to arbitrary common (across-groups) autocorrelated > disturbances. > >> This approach relies on asymptotics in which the number of > >> observations in the T dimension goes off to infinity. 11 > is not very > >> far on the way to infinity. > >> > >> Personally, I'd be reluctant to use either of these > approaches with > >> an > >> N=11/T=11 panel. Maybe others on the list can offer some > suggestions > >> for alternatives. > >> > >> Sorry to sound so negative, but that's how it looks from here. > >> > >> --Mark > >> > >>> -----Original Message----- > >>> From: owner-statalist@hsphsun2.harvard.edu > >>> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf > Of christina > >>> sakali > >>> Sent: 19 September 2011 12:44 > >>> To: statalist > >>> Subject: st: xtscc and small samples (equal size T and N) > >>> > >>> Hello all, > >>> > >>> I am estimating 3 different specifications of a panel > fixed effects > >>> model with T=N=11. According to Pesaran's test I have found the > >>> presence of contemporaneous correlation in all 3 specifications. > >>> > >>> I then tried to estimate all 3 specs with both -xtscc ..., > >>> fe- and -xtreg ..., fe cluster(panelvar) - > >>> > >>> When comparing the S.E. produced by the two estimators, I was > >>> surprised to notice the following: > >>> > >>> Although in the first spec, xtscc S.E. were ALL larger > than cluster > >>> S.E., in the other two specs xtscc S.E. were either larger or > >>> smaller than cluster S.E. However the difference was rather small. > >>> > >>> What does this indicate for my data and model (when xtscc > produces > >>> both smaller and larger S.E. than cluster in the same > specification) > >>> and which of the two estimates (xtscc or > >>> cluster) should I trust as more appropriate for my model? > >>> > >>> I am using Stata 9.2. > >>> > >>> Any help or suggestions are appreciated. > >>> * > >>> * For searches and help try: > >>> * http://www.stata.com/help.cgi?search > >>> * http://www.stata.com/support/statalist/faq > >>> * http://www.ats.ucla.edu/stat/stata/ > >>> > >> > >> > >> -- > >> Heriot-Watt University is a Scottish charity registered > under charity > >> number SC000278. > >> > >> > >> * > >> * For searches and help try: > >> * http://www.stata.com/help.cgi?search > >> * http://www.stata.com/support/statalist/faq > >> * http://www.ats.ucla.edu/stat/stata/ > >> > > > > * > > * For searches and help try: > > * http://www.stata.com/help.cgi?search > > * http://www.stata.com/support/statalist/faq > > * http://www.ats.ucla.edu/stat/stata/ > > > > * > * For searches and help try: > * http://www.stata.com/help.cgi?search > * http://www.stata.com/support/statalist/faq > * http://www.ats.ucla.edu/stat/stata/ > -- Heriot-Watt University is a Scottish charity registered under charity number SC000278. * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**Re: st: RE: xtscc and small samples (equal size T and N)***From:*christina sakali <christina.sakali@googlemail.com>

**References**:**st: xtscc and small samples (equal size T and N)***From:*christina sakali <christina.sakali@googlemail.com>

**st: RE: xtscc and small samples (equal size T and N)***From:*"Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>

**Re: st: RE: xtscc and small samples (equal size T and N)***From:*christina sakali <christina.sakali@googlemail.com>

**Re: st: RE: xtscc and small samples (equal size T and N)***From:*Sami Alameen <samialameen@gmail.com>

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