Re: st: fixed effects with clustering when the number of levels of variable to be absorbed exceeds number of clusters

[Daniel Simon <dhs29@cornell.edu>]

Sorry - I made a mistake in the subject line of my last message. It is now 
correct. Daniel

At 09:59 AM 3/1/2006 -0500, you wrote:

> Hi Austin - thanks for pointing out that "the number of levels of the 
> absorb() variable should not exceed the number of clusters." I have two 
> questions about this: (1) I assume that the same holds true for xtreg,fe 
> with clustering (given that this yields identical std errors to areg with 
> clustering). Is this assumption correct? (2) Does anyone have suggestions 
> for the most efficient way to estimate fixed-effects models with 
> clustering when there are thousands of fixed effects but clustering occurs 
> on a variable with many fewer units? For example, if I have a panel 
> dataset tracking thousands of individuals over time and I want to examine 
> the impact of a state policy variable, then I would want to estimate a 
> model with individual fixed effects but I would also want to cluster by state.
> What would be a sensible way to proceed in this situation?
>
> Thanks. Daniel
>
> At 02:06 PM 2/28/2006 -0500, you wrote:
>
> > Perhaps I should ignore this question in the same way you have ignored
> > the advice in the Statalist FAQ on how to write a well-formed question
> > (in particular, you give no indication what command you used or what
> > error message you got, much less show us the output), but you should
> > certainly read:
> >       -help xtreg- -help xtdata- and -help areg-
> > for starters.  Note also that you may want to cluster on id, assuming
> > your fixed effects are individual id and year effects, to allow for
> > arbitrary serial correlation within panel, and -cluster- implies
> > -robust-. But see the various FAQs on the subject, and such advice as
> > appears in the relevant help files, e.g.
> >   Note: Exercise caution when using the cluster() option with areg.
> >         The effective number of degrees of freedom for the robust variance
> >         estimator is (n_g - 1), where n_g is the number of clusters.  Thus
> >         the number of levels of the absorb() variable should not exceed the
> >         number of clusters.
> >
> > On 2/28/06, Yasmine Kent <yasmine_kent@yahoo.co.uk> wrote:
> > > Hi,
> > >
> > > Apologies if this is a basic question...
> > >
> > > I would like to obtain ROBUST standard errors and
> > > t-statistics in a panel data regression that I am
> > > running (with 2-way fixed effects). The 'robust'
> > > command does not appear to work with panel data, it
> > > gives an error message. Theoretically, I thought that
> > > it should be possible to get these. Is there another
> > > command I should use instead? (I am using Stata 8).
> > >
> > > Thank you!
> > > Yasmine
> >
> > *
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> Daniel Simon
> Assistant Professor
> Department of Applied Economics and Management
> Cornell University
> (607) 255-1626
> *
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Daniel Simon
Assistant Professor
Department of Applied Economics and Management
Cornell University
(607) 255-1626 
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