Re: Re: Re: st: inconsistent results for two-dimensions fixed effects

[Nahla Betelmal <nahlaib@gmail.com>]

Many thanks Kit for the reply and the great help. Thanks for pointing
out xtiverg2.
yes I should have typed xi: reg DV IV i.year i.firm. sorry my mistake!
many thanks again
Nahla

On 17 August 2013 12:11, Christopher Baum <kit.baum@bc.edu> wrote:
> <>
> On Aug 17, 2013, at 2:33 AM, Nadia wrote:
>
>> if the panel is set to firm and year
>> to get two dimensions fixed effect using xtreg, the right way is to run :
>> xtreg DV IV i.year, fe vce (cluster firm) , but not xtreg DV IV
>> i.year, fe  because the latter does not control for correlation of
>> error terms within clusters.
>>
>> Also, it is feasible to use :  ivreg2  DV IV,cluster (firm year)
>> IV is independent variable (not instrument)
>>
>>
>> Finally, reg DV IV i.year i.firm does not provide the same out as the
>> previous two because cluster-robust VCE is not applicable in this
>> case. However, it will give the same result as xtreg DV IV i.year, fe
>
> Re first point: correct.
>
> Re second point: you can run that regression with ivreg2, assuming you have enough firms and years,
> but it is almost surely misspecified in omitting firm fixed effects (the F-test at the foot of xtreg, fe output
> tests that suspicion). I would suggest using
>
> tsset firm year
> xtivreg2 DV IV, clu(firm year) fe
>
> and test for the significance of a set of year dummies as well. Warning: you cannot use factor variable notation
> for the year dummies. You could use the xi: prefix to do so.
>
> 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
>                                                                                                    | http://www.crup.com.cn/Item/111779.aspx
>
>
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