st: re: two-way fixed effects

[Christopher Baum <baum@bc.edu>]

< >
David is right on in suggesting that adding time dummies to xtreg, fe  
is the best way to implement two-way fixed effects. But

"The larger t-statistic you mention probably stems from greater  
multicollinearity in a two- rather than a one-way fixed-effects model."

doesn't make much sense, as collinearity inflates standard errors and  
reduces t-stats, not the opposite.

Kit Baum, Boston College Economics and DIW Berlin
http://ideas.repec.org/e/pba1.html
An Introduction to Modern Econometrics Using Stata:
http://www.stata-press.com/books/imeus.html

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