st: RE: xtscc and small samples (equal size T and N)

["Schaffer, Mark E" <M.E.Schaffer@hw.ac.uk>]

Christina,

You don't tell us how the 3 specifications differ.  It's hard to offer
explanations for the differences in results without this information.

That said, it looks like you have a basic problem here.

The cluster-robust approach gives you SEs that are robust to arbitrary
within-group autocorrelation.  It relies on asymptotics in which the
number of clusters N goes off to infinity.  11 is not very far on the
way to infinity.

The Driscoll-Kraay SEs implemented by -xtscc- apply the kernel-robust
approach (e.g., Newey-West) to panel data.  It gives you SEs that are
robust to arbitrary common (across-groups) autocorrelated disturbances.
This approach relies on asymptotics in which the number of observations
in the T dimension goes off to infinity.  11 is not very far on the way
to infinity.

Personally, I'd be reluctant to use either of these approaches with an
N=11/T=11 panel.  Maybe others on the list can offer some suggestions
for alternatives.

Sorry to sound so negative, but that's how it looks from here.

--Mark

> -----Original Message-----
> From: owner-statalist@hsphsun2.harvard.edu 
> [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of 
> christina sakali
> Sent: 19 September 2011 12:44
> To: statalist
> Subject: st: xtscc and small samples (equal size T and N)
> 
> Hello all,
> 
> I am estimating 3 different specifications of a panel fixed 
> effects model with T=N=11. According to Pesaran's test I have 
> found the presence of contemporaneous correlation in all 3 
> specifications.
> 
> I then tried to estimate all 3 specs with both -xtscc ..., 
> fe- and -xtreg ..., fe cluster(panelvar) -
> 
> When comparing the S.E. produced by the two estimators, I was 
> surprised to notice the following:
> 
> Although in the first spec, xtscc S.E. were ALL larger than 
> cluster S.E., in the other two specs xtscc S.E. were either 
> larger or smaller than cluster S.E. However the difference 
> was rather small.
> 
> What does this indicate for my data and model (when xtscc 
> produces both smaller and larger S.E. than cluster in the 
> same specification) and which of the two estimates (xtscc or 
> cluster) should I trust as more appropriate for my model?
> 
> I am using Stata 9.2.
> 
> Any help or suggestions are appreciated.
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