Dear Mark,
thank you very much, this has clarified it. One more question:
>> For example, I have N=8, T=12, a balanced panel (N*T=96), and want to
>> have one cluster for each state (N), so M=8. The model I estimate has
>> time and state fixed effects and only one regressor beyond that, so
>> 1+7+11 coefficients to estimate. Is that because 19>8?
>
> If you are using xtivreg2, then you probably estimating a fixed effects
> model with 8 fixed effects and 11 time dummies. The fixed effects are
> NOT explicitly estimated - as usual with the FE model, they are
> partialled out using the within transformation (demeaning). Thus you
> are probably obtaining 1+11=12 explicit coefficient estimates.
>
> But your conclusion is basically correct. Because 12 (number of
> coefficients, var-cov matrix of moment conditions is 12x12) > 8 (number
> of clusters, rank of the var-cov matrix of moment conditions), the
> var-cov matrix of moment conditions is not of full rank.
How does the number of instruments factor into this calculation? In
this specific example, I tried to partial out the year dummies, so I
should be (and actually am) fine. The remeining number of coefficients
is 1, which is greater than 8. But if I move to an overidentified
case, and increase the number of instruments, at some point I get the
message again. So, to be precise, I get the message with 9
instruments, but not with 8. So is the rule:
# of regressors + # of (excl) instruments - 2 < # of clusters
Thanks,
AC
*
* For searches and help try:
* http://www.stata.com/help.cgi?search
* http://www.stata.com/support/statalist/faq
* http://www.ats.ucla.edu/stat/stata/
