st: xtreg, fe and cluster-robust standard errors

[Hanley Chiang <hchiang@fas.harvard.edu>]

Dear all,

Does anyone know the exact degrees of freedom adjustment for obtaining 
the clustered standard errors in the command
xtreg y x, i(id) fe cluster(id)?
This issue has been discussed previously (see 
http://www.stata.com/statalist/archive/2006-12/msg00867.html), but I 
don’t think the exact adjustment was ever specified.

More precisely, let V be the cluster-robust estimator for the asymptotic 
variance-covariance matrix of the fixed effects estimator. V is 
specified in Wooldridge (2002, p.275). The command
xtivreg2 y x, i(id) fe cluster(id)
gives a variance-covariance matrix equal to V. The command
xtivreg2 y x, small i(id) fe cluster(id)
gives a variance-covariance matrix equal to {[(N-1)/(N-k)][M/(M-1)]}V 
where N is the sample size, k is the number of regressors (excluding the 
fixed effects), and M is the number of clusters. Finally, the command
areg y x, absorb(id) cluster(id)
gives a variance-covariance matrix equal to {[(N-1)/(N-G-k)][M/(M-1)]}V 
where G is the number of fixed effects. (In my case, G=M.)

However, in Stata version 10.0, the clustered standard errors in xtreg, 
fe are equal to none of the above. Does anyone know the adjustment 
factor that multiplies V?

Thanks,
Hanley Chiang

References

Wooldridge, Jeffrey (2002). Econometric Analysis of Cross Section and 
Panel Data. Cambridge, MA: MIT Press.

--
Hanley S. Chiang
Ph.D. Candidate
Harvard University Economics Dept.
Littauer Center
Cambridge, MA 02138
Phone: (617) 613-1251
http://www.people.fas.harvard.edu/~hchiang

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