Mark--
I concur that getting het-robust SEs should still be possible with
-xtreg, re-. I wonder, for example, about the relative performance in
smallish samples where T and N are both under 100 and there are many
explanatory variables. The cluster-robust SE will offer uniformly
better performance as N goes to infinity, I suspect, but in some kinds
of small finite samples the het-robust SE may be better, and users
should have that option IMHO. Unless there is strong evidence that
cluster-robust is always better than het-robust in RE models, which I
have not seen. On the other hand, I would make cluster-robust SEs the
default (for both FE and RE), instead of -vce(conventional)-, and make
users spell out vce(conventional) [literally] to get that inferior
estimator. Of course, I would also make -fe- the default for -xtreg-
in Stata 11.1, and make users spell out -re- to get that (more often
inferior) estimator. Why not help people make good choices with the
defaults? (I would also make het-robust SEs the default for -regress-
and make folks specify vce(ols) for the old default.)
On Wed, Aug 19, 2009 at 2:19 PM, Schaffer, Mark E<[email protected]> wrote:
> This is different from the reason provided by Stock-Watson (2008) for
> FEs (see earlier in the thread).
>
> Stock and Watson show that for the fixed effects estimator, the usual
> robust VCV - i.e., robust but not cluster-robust - is not consistent.
> It's another example of the "incidental parameters" problem. This is
> why Stata 10 won't report it under any circumstances, including version
> control.
>
> My suspicion was that this might carry over to the usual robust VCV for
> the random effects estimator and that this was why it was dropped in
> Stata 11, but apparently not. Using cluster-robust with RE is
> apparently just following standard practice in the literature.
>
> If so, though, then I think I'd prefer to see non-cluster robust SEs
> available with the RE estimator through an option rather than version
> control.
>
> --Mark (left scratching his head and wondering why robust and cluster
> robust are both kosher for the RE estimator, only cluster-robust is
> kosher for the FE estimator, Stata's PA estimator allows only robust but
> not cluster-robust, and Stata's MLE estimator allows neither)
>
>
>> -----Original Message-----
>> From: [email protected]
>> [mailto:[email protected]] On Behalf Of DE
>> SOUZA Eric
>> Sent: 19 August 2009 18:37
>> To: '[email protected]'
>> Subject: RE: st: Stata 11 Random Effects--Std. Errors
>>
>> To add more detail:
>> Two of the assumptions underlying the random effects model are that:
>> 1. the unobservable effects are not correlated with the
>> explanatory variables 2. the residuals have the random
>> effects structure The second assumption is not required for
>> consistency.
>> Wooldridge's argument is: then why impose it. "With fixed T
>> and large N asymptotics, we lose nothing in using robust
>> standard errors and test statistics even if [the random
>> effects error structure] holds".
>>
>> Eric
>>
>>
>> Eric de Souza
>> College of Europe
>> Brugge (Bruges), Belgium
>> http://www.coleurope.eu
>>
>> -----Original Message-----
>> From: [email protected]
>> [mailto:[email protected]] On Behalf Of
>> David M. Drukker
>> Sent: 19 August 2009 19:04
>> To: [email protected]
>> Subject: RE: st: Stata 11 Random Effects--Std. Errors
>>
>> Continuing the thread about why -xtreg .., re vce(robust)-
>> changed its meaning between Stata 10 and Stata 11, Mark E
>> Schaffer <[email protected]> asked for a citation.
>>
>> Wooldridge (2002, section 10.4.2) recommends the new approach
>> of having
>> -vce(robust)- mean -vce(cluster panelvar)-.
>>
>> When we first offered the -vce(robust)- and -vce(cluster
>> clustvar)- on -xtreg, re-, we wanted to offer users the
>> flexibility to use either estimator. We had Monte Carlo
>> simulations showing that there are data generating processes
>> for which -vce(robust)- performs quite well, so we allowed
>> users to choose.
>>
>> Since we first offered these options, the literature has
>> focused on always using -vce(cluster panelvar)- to obtain a
>> "robust" estimator for -xtreg, re-. We made the change
>> because the new method is what users now expect and it offers
>> additional generality.
>>
>> David
>> [email protected]
>>
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