Dear statalisters,
A similar question was already discussed, (see:
http://www.stata.com/statalist/archive/2007-05/msg00181.html) but still
I'm not sure how to proceed with my case. I want to estimate a
fixed effects model, two-way (including time dummies). So the first question is,
does it make sense to use xtscc in this case, as -as Daniel remarked -
including time fixed effects would be a parametric way of correcting
for cross-sectional
dependence? So I could use FE two-way with cluster() option and be on
the safe side regarding heteroskedasticity and correlation within and
between panels? But I wonder if this approach might produce too
conservative standard error estimations in a FE regression?
The unbalanced panel I use consists of n=10.000 cross-sectional units
with up to t=20 time-periods, (and I don't know if this matters, but as
I use FE regression only observations with time-variant features are
used, so the estimation of the coefficients of interest are based on
about n=300);
When I use the oneway FE regression, the standard errors of xtscc are
biggest but nearer to the panel-robust SEs (cluster -option). When I
use two-way FE for all models the standard error estimates of xtssc are
between the normal FE and FE with panel robust SE; in this case the
xtssc SE are about a third lower compared to the panel-robust SEs.
Referring to the discussion before that would mean that when including
the time-dummies the remaining correlation between cross-sectional units
is negative (????)-whatever that may mean?
So I'm not sure which SE estimations to use? Could I rely on xtscc SE?
I tried to test for cross-sectional dependence with xtcsd but I can't
extend matsize in Stata sufficiently.
Any help or hints are appreciated
Natasha
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