Daniel,
To be honest, I'm not sure about the answer to your question.
Rather than me hazarding a guess, maybe someone else on the list would
like to take a stab at it...?
--Mark
> -----Original Message-----
> From: [email protected]
> [mailto:[email protected]] On Behalf Of
> Daniel Simon
> Sent: 01 March 2006 18:20
> To: [email protected]
> Subject: RE: st: fixed effects with clustering when the
> number of levels of variable to be absorbed exceeds number of clusters
>
> thanks a lot, Mark. once again, extremely helpful. one last
> question: If I'm only interested in testing significance of a
> handful of regressors is this less of a concern?
> Thanks again for your thoughtful replies. Daniel
>
> At 04:49 PM 3/1/2006 +0000, you wrote:
> >Daniel,
> >
> >This is a tricky question, at least for me, and I don't know the
> >complete answer.
> >
> >The situation you describe is definitely a problem if you
> want to test
> >lots of parameter restrictions. If you try, say, to test the joint
> >significance of all your regressors, you will fail, because you have
> >more (restrictions on) regressors than clusters. You will probably
> >also see that the F statistic automatically reported by areg
> or xtreg
> >is missing and highlighted in blue, and if you click on it
> you'll get a
> >longish discussion that includes the following:
> >
> >"There is no mechanical problem with your model, but you need to
> >consider carefully whether any of the reported standard errors mean
> >anything. The theory that justifies the standard error
> calculation is
> >asymptotic in the number of clusters, and we have just
> established that
> >you are estimating at least as many parameters as you have clusters.
> >
> >Putting that concern aside, the model test statistic issue
> is that you
> >cannot simultaneously test that all coefficients are zero
> because there
> >is insufficient information. You could test a subset, but
> not all, and
> >so Stata refuses to report the overall model test statistic."
> >
> >The full help message is available as -help j_robustsingular-.
> >
> >However ... there is some ambiguity in the statement above, since it
> >implies that it's *possible* that none of the SEs mean anything. I
> >used to think this was automatically the case if the cluster-robust
> >var-cov matrix is not full rank, but now I'm not sure. It
> may be the
> >case that, for example, you can still get valid tests of one
> or a few
> >coefficients even if you can't test them all jointly. I've been
> >meaning to go searching through the literature to find the
> references
> >on this but haven't had the time....
> >
> >Cheers,
> >Mark
> >
> > > -----Original Message-----
> > > From: [email protected]
> > > [mailto:[email protected]] On Behalf Of Daniel
> > > Simon
> > > Sent: 01 March 2006 15:54
> > > To: [email protected]
> > > Subject: RE: st: fixed effects with clustering when the number of
> > > levels of variable to be absorbed exceeds number of clusters
> > >
> > > Mark - thanks, this is very helpful, as usual. Now, I have a
> > > follow-up. If, in addition to the set of fixed effects that I am
> > > absorbing, I have another set of dummies that I am including
> > > manually with i. and there about as many of these i.fixed
> effects as
> > > there are clusters, then this will pose a problem. Is
> that correct?
> > > For example, if in my individual fixed effects model
> where I cluster
> > > on state, I also want to include fixed effects for age (e.g. a
> > > separate dummy for each value of age in years in my
> dataset), and I
> > > have forty different age dummies, then the number of age
> dummies is
> > > close to the number of clusters. In this situation, is
> there some
> > > way to assess whether the estimates of the std errors are
> > > problematic? and, is there some alternative way to proceed?
> > >
> > > Thanks again. Daniel
> > >
> > > At 03:19 PM 3/1/2006 +0000, you wrote:
> > > >Daniel,
> > > >
> > > >What you need to be aware of is that the asymptotics
> justifying the
> > > >cluster-robust estimator requires the number of clusters to
> > > go off to
> > > >infinity. I don't think Austin's comment is quite right, at
> > > least in
> > > >the context you've cited it. The number of fixed effects
> > > can be much
> > > >bigger than the number of clusters, and that won't by
> itself cause
> > > >a problem - after all, the fixed effects are not actually
> > > being estimated.
> > > >What *will* cause problems is if you have very few
> clusters, esp.
> > > >if compared to the number of parameters that you *are*
> estimating.
> > > >In your example, you want to cluster by state. 50 is not very
> > > far on the
> > > >way to infinity, but maybe it's enough for your purposes.
> > > But if you
> > > >also have lots of parameters that you want to test, then you
> > > will start
> > > >running into serious problems (nb: the rank of the
> cluster-robust
> > > >var-cov matrix is equal to the number of clusters minus the
> > > number of
> > > >estimated parameters).
> > > >
> > > >Hope this helps.
> > > >
> > > >--Mark
> > > >
> > > > > -----Original Message-----
> > > > > From: [email protected]
> > > > > [mailto:[email protected]] On Behalf Of
> > > > > Daniel Simon
> > > > > Sent: 01 March 2006 15:02
> > > > > To: [email protected]
> > > > > Subject: Re: st: fixed effects with clustering when
> the number
> > > > > of levels of variable to be absorbed exceeds number
> of clusters
> > > > >
> > > > > 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 <[email protected]> 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
> > > > > >>
> > > > > >>*
> > > > > >>* 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/
> > > > > >
> > > > > >Daniel Simon
> > > > > >Assistant Professor
> > > > > >Department of Applied Economics and Management Cornell
> > > > > >University
> > > > > >(607) 255-1626
> > > > > >*
> > > > > >* 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/
> > > > >
> > > > > Daniel Simon
> > > > > Assistant Professor
> > > > > Department of Applied Economics and Management Cornell
> > > > > University
> > > > > (607) 255-1626
> > > > >
> > > > > *
> > > > > * 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/
> > > > >
> > > > >
> > > >
> > > >*
> > > >* 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/
> > >
> > > Daniel Simon
> > > Assistant Professor
> > > Department of Applied Economics and Management Cornell University
> > > (607) 255-1626
> > >
> > > *
> > > * 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/
> > >
> > >
> >
> >*
> >* 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/
>
> Daniel Simon
> Assistant Professor
> Department of Applied Economics and Management Cornell University
> (607) 255-1626
>
> *
> * 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/
>
>
*
* 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/
