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From |
"Schaffer, Mark E" <[email protected]> |

To |
<[email protected]> |

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

Date |
Tue, 20 Sep 2011 14:23:34 +0100 |

```
Christina,
With respect to your last point, you might actually be OK here.
Stock & Watson show that the standard Eicker-Huber-White-robust VCV is biased with small-N large-T panels. But if you check the paper (eqn 5), you'll see that the bias term has a 1/(T-1) in front of it. In other words, the bias is decreasing in T. In your case, T=11 may be enough for you to justify using the standard het-robust VCV.
There is an as-yet undocumented option in -xtivreg2-, sw, that implements the Stock-Watson correction to the standard het-robust VCV. (It's still not documented because I haven't yet verified it against a published output or another package.) If the sw option gives you SEs that are similar to the standard het-robust SEs, you've got grounds to believe that T is indeed large enough to justify using the latter.
HTH,
Mark
NB: If anyone can point me to an example of Stock-Watson SEs that I can try to replicate, I'd be most grateful.
References:
Stock & Watson (2008), http://www.princeton.edu/~mwatson/papers/ecta6489.pdf
> -----Original Message-----
> From: [email protected]
> [mailto:[email protected]] On Behalf Of
> christina sakali
> Sent: 20 September 2011 13:17
> To: [email protected]
> Subject: Re: st: RE: xtscc and small samples (equal size T and N)
>
> Dear Gordon, thanks for the response.
>
> From your as well as Mark's suggestions, I get the idea that
> perhaps the simple two way fixed effects model is the most
> appropriate choice for my data, although I do understand than
> none of the options is ideal with such a small panel sample.
>
> In other, previous papers with similar sample sizes and
> topic, I have seen that they usually either go for a simple
> one or two way fixed effects model or rely on simple robust
> SE such as White SE. However I am aware that Stock and Watson
> (2008) showed that these are inconsistent, so this option is
> also ruled out for my data..
>
> On 20 September 2011 13:29, Gordon Hughes <[email protected]> wrote:
> > You will probably get almost as many views about what constitutes
> > large T and/or large N as the number of people you consult. The
> > answer is very dependent upon the type of data which you are
> > analysing, because panel data comes in many different
> forms. However,
> > as Mark says, no one would believe that 11 gets close.
> >
> > For -xtscc- you are dealing with large T asymptotics, so
> the reference
> > point would be time series asymptotics. If you have annual data I
> > doubt whether anyone would rely on large T results for T
> much below 30
> > and some might be much stricter. The problem, of course,
> is that many
> > panel datasets don't meet that criterion, in which case you have to
> > start to think carefully about what you are trying to
> estimate. That
> > is the point which underlies Mark's original suggestion. Your
> > response indicates that you may be trying to get too much
> out of some rather noisy - or complex - data.
> >
> > Gordon Hughes
> > [email protected]
> >
> > =====================================
> >
> > Date: Tue, 20 Sep 2011 02:12:43 +0300
> > From: christina sakali <[email protected]>
> > Subject: Re: st: RE: xtscc and small samples (equal size T and N)
> >
> > Dear Mark, thanks a lot for the advice and recommendations.
> >
> > I am a bit reluctant to go for just the simple 2-way fixed effects
> > model, since after implementing the necessary tests, I have
> found that
> > my residuals suffer from both heteroscedasticity and
> cross-sectional
> > dependence, so I am looking for an estimator to account for both of
> > these problems.
> >
> > Does the inclusion of time fixed effects correct for
> > heteroscedasticity and/or cross-sectional dependence and
> how exactly
> > is this achieved? (or can you suggest some reference where
> I can find
> > some more information on this issue).
> >
> > Can you also please clarify this for me: What is the
> minimum (more or
> > less) sample size required for the use of estimators that rely on
> > large T and N asymptotics?
> >
> > Thank you again.
> >
> > Christina
> >
> >
> > *
> > * 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/
>
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registered under charity number SC000278.
*
* For searches and help try:
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```

**Follow-Ups**:**Re: st: RE: xtscc and small samples (equal size T and N)***From:*christina sakali <[email protected]>

**RE: st: RE: xtscc and small samples (equal size T and N)***From:*"Schaffer, Mark E" <[email protected]>

**References**:**st: RE: xtscc and small samples (equal size T and N)***From:*Gordon Hughes <[email protected]>

**Re: st: RE: xtscc and small samples (equal size T and N)***From:*christina sakali <[email protected]>

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