This post continues the thread about robust standard errors for the
generalized least-squares estimator implemented in -xtreg ,re-.
Eric de Souza <[email protected]> asked whether there will be
separate -vce()- options on -xtreg, re- to produce consistent estimators of
the variance-covariance of the estimator (VCE) when the errors are
heteroskedastic and when the errors are serially correlated.
The answer is yes, there will be separate options for these cases.
We will add a new -vce()- option for -xtreg ,re- that will produce the
observation-level robust estimator that is consistent in the presence of
some types of heteroskedasticity with -xtreg, re-. This observation-level
robust estimator was produced by -vce(robust)- in Stata 10.1.
In the Stata 11 -xtreg ,re-, we changed the meaning of the -vce(robust)- to
be a synonym for -vce(cluster panelvar)-. We made this change because
researchers increasingly expect this definition of robust. As Cameron and
Trivedi (2005, section 21.2.3) and Wooldridge (2002, section 10.4.2) make
clear, this individual-level robust estimator of the VCE is the natural
"robust" estimator when sampling vectors of observations from individuals in
the population. This VCE estimator is robust at the individual-level
instead of at the observation level. This individual-level robust estimator
of the VCE is more attractive in most real-world cases than the
observation-level robust estimator because sampling is performed at the
individual level. This individual-level robust estimator is consistent in
the presence of heteroskedasticity and autocorrelation.
Summing up, when specified with -xtreg re-, -vce(robust)- will continue to
be a synonym for -vce(cluster panelvar)-. We will add a new, as yet
unnamed, -vce()- option that will produce the observation-level robust VCE
estimator that is robust to some types of heteroskedasticity.
David
[email protected]
References
----------
Cameron, A. C. and P. K. Trivedi. 2005. Microeconometrics: Methods and
Applications. New York: Cambridge University Press.
Wooldridge, J. W. 2002. Econometric Analysis of Cross Section and Panel Data.
Cambridge, MA: MIT Press.
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