Lisa,
> -----Original Message-----
> From: [email protected]
> [mailto:[email protected]] On Behalf Of
> Lisa M. Powell
> Sent: 08 March 2009 14:34
> To: [email protected]
> Subject: st: Clustered standard errors in -xtreg- with dfadj
>
> Dear List members,
>
> I would like to follow up on some of your email exchanges
> (see email exchange at the
> bottom of this email) regarding the inclusion
> of the dfadj command when clustering standard errors in an FE
> panel model.
>
> I have an unbalanced sample of individuals over 4 waves of data. I
> include county level variables in the analyses which are my key
> variables of interest and I would like to cluster on the county id.
> Given that individuals can move over time, they are not fully nested
> within the clusters (the counties).
>
> In STATA 10, if I try to run: xtreg outcome $econ5, i(caseid)
> vce(cluster fip) fe;
> then I get the message of: panels are not nested within
> clusters r(498);
> which is indeed the case.
>
> I gather that in earlier version of STATA such as 8.0 where one did
> not have to specify nonest using the cluster command even when the
> panels were not nested that STATA as the default implemented
> dfadj ? Is that correct?
I can't answer that offhand but it should be clear in the Stata 8
manuals. Or you can compare Stata 8 and Stata 10 (with -nonest-) output
and see if they're the same.
> Therefore, I have added the option "nonest".
> (xtreg outcome $econ5, i(caseid) vce(cluster fip) nonest fe)
>
> If I additionally add the option "dfadj" then as expected my standard
> errors increase.
> (xtreg outcome $econ5, i(caseid) vce(cluster fip) nonest dfadj fe)
>
> In another post, a few years ago, Mark Schaffer responded as
> follows which was very helpful:
> The problem arises when the panels cut across clusters. Some dof
> adjustment is needed, but what should it be? I don't know,
> and I haven't
> seen any paper that describes exactly what it should be. When writing
> -xtivreg2-, I opted simply for the program to exit with
> error. Official
> -xtivreg- now has the -nonest- and -dfadj- options; these
> didn't exist
> when I wrote -xtivreg2-. You'll see that they allow you to go between
> the extremes of no dof adjustment (which will give you SEs
> that are too
> small) and a full dof adjustment (which will give you
> "conservative" SEs
> that are on the large side).
>
> My question now: Is there a "partial" adjustment that can be done?
When this first came up a few years ago, I had a brief correspondence
with, I think, David Drukker and Vince Wiggins from StataCorp (I think
it was "and" but it might have been "or").
As I recall, the problem is that your question hasn't been answered in
the theoretical literature, and deriving an answer would be hard. Maybe
someone has tackled this problem by now, but I haven't seen anything.
The only thing I can suggest is to do a Monte Carlo simulation of your
problem and see what sort of adjustment is needed to make the
cluster-robust VCV estimator behave reasonably. (Or possibly, as you
suggest, try bootstrapping.)
--Mark
> Alternatively, is there a way to bootstrap the standard
> errors to account for the non-nested county clusters?
>
> Any further advice that you could offer would be much appreciated.
>
> many thanks,
> Lisa
>
>
>
> *
> *From* "Schaffer, Mark E" <[email protected]
> <mailto:[email protected]>>
> *To* <[email protected]
> <mailto:[email protected]>>
> *Subject* RE: st: Clustered standard errors in -xtreg-
> *Date* Thu, 28 Dec 2006 13:55:02 -0000
>
> --------------------------------------------------------------
> ----------
>
> Thomas,
>
> > -----Original Message-----
> > From: [email protected]
> > [mailto:[email protected]] On Behalf Of
> > Thomas Corneli?en
> > Sent: 28 December 2006 12:29
> > To: [email protected]
> > Subject: Re: st: Clustered standard errors in -xtreg-
> >
> > > Thomas Cornelissen wrote:
> >
> >
> > > >> I am comparing two different ways of estimating a linear
> > > >> fixed-effects
> > > >> model:
> > > >>
> > > >> Method 1: Use -regress- and include dummy variables
> for the panels.
> > > >> Method 2: Use -xtreg, fe-.
> > > >>
> > > >> These two deliver exactly the same estimates of
> coefficients and
> > > >> their standard errors (if I do not cluster the
> standard errors).
> > > >>
> > > >> However, if I use the option -cluster- in order to get
> clustered
> > > >> standard errors (clustered on the panel ID), I get different
> > > >> results with the two ways of estimating the model.
> > > >>
> > > >> Why is this ?
>
> <snip>
>
> > Is there a rationale for not counting the absorbed regressors
> > when standard errors are clustered ?
> >
> > Haven't degrees of freedom been used for absorbing the
> > variables and therefore the absorbed regressors should always
> > be counted as well?
>
> The short answer to your first question is "yes" - you don't have to
> include the number of absorbed regressors in a degrees of freedom
> adjustment for the cluster-robust covariance estimator. The slightly
> longer answer is to appeal to authority, e.g., Wooldridge's 2002
> textbook. The cluster-robust covariance estimator is given in eqn.
> 10.59 on p. 275, and you will see there is no dof adjustment. The
> standard covariance estimator is discussed on pp. 271-2, and the dof
> adjustment is given explicit attention.
>
> This is why the more recent versions of Stata's official -xtreg- have
> the -nonest- and -dfadj- options for fixed effects estimation.
>
> -nonest- relates to nesting panels within clusters; the
> cluster-robust
> cov estimator doesn't require a dof adjustment but only if panels are
> nested within clusters. If panels are not nested within
> clusters, then
> some kind of dof adjustment is needed.
>
> -dfadj- will impose the full dof adjustment on the cluster-robust cov
> estimator. If panels are nested within clusters, then you
> would never
> need to use this. But since some kind of dof adjustment is needed if
> panels are not nested within clusters, you can use this
> option to go all
> the way and impose the full dof adjustment.
>
> Cheers,
> Mark
>
> Prof. Mark Schaffer
> Director, CERT
> Department of Economics
> School of Management & Languages
> Heriot-Watt University, Edinburgh EH14 4AS
> tel +44-131-451-3494 / fax +44-131-451-3296
> email: [email protected]
> web: http://www.sml.hw.ac.uk/ecomes
>
>
>
>
> --
> Lisa M. Powell, PhD
> Research Associate Professor
> Senior Research Scientist
> Institute for Health Research and Policy
> University of Illinois at Chicago
> tel: 312-413-8468
> fax: 312-996-0065
>
> *
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>
--
Heriot-Watt University is a Scottish charity
registered under charity number SC000278.
*
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