Mark Schaffer followed-up Buzz Burhans's response to a question about the
differences between -xtreg, re- and -regress , cluster()-. Mark brought up
differences in consistency and efficiency between the two methods. Excerpting
Mark's post:
--------------------------------------------------------------------------------
Trade offs:
-xtreg- gives you more efficient estimates if your modelling of the
correlation caused by clustering is correct. If it isn't, your coeffs and
SEs are wrong.
-regress- with -cluster- gives you consistent estimates across a broad
range of possible forms of the correlation, but they won't be as efficient
as when you know the exact form (and you're right).
--------------------------------------------------------------------------------
I have a follow-up question on consistency: random effects regression gives
inconsistent results when there is substantial correlation between a fixed-
effect regressor and the random effect; will -regress , cluster()- overcome
this liability and provide consistent estimators when there is a correlation
between a regressor and an (un-modeled) random effect? As an extension, if you
get a significant Hausman test after -xtreg , re-, would a reasonable back-up
approach--albeit taking a hit in efficiency--be to resort to -regress ,
cluster()-?
Joseph Coveney
*
* For searches and help try:
* http://www.stata.com/support/faqs/res/findit.html
* http://www.stata.com/support/statalist/faq
* http://www.ats.ucla.edu/stat/stata/
