Re: st: difference between -xtreg, fe- and -areg, absorb- when adding the cluster option

[natalie rebolledo <na.rebolledo.02@gmail.com>]

Thank you so much for the answer! It was really helpfull.

2013/1/14 Ryan Kessler <ryan.kessler.stata@gmail.com>:
> Note #2 from http://www.kellogg.northwestern.edu/faculty/matsa/htm/fe.htm:
>  When clustering, areg reports cluster-robust standard errors that
> reduce the degrees of freedom by the number of fixed effects swept
> away in the within-group transformation; xtreg reports smaller
> cluster-robust standard errors because it does not make such an
> adjustment.  xtreg’s approach of not adjusting the degrees of freedom
> is appropriate when the fixed effects swept away by the within-group
> transformation are nested within clusters (meaning all the
> observations for any given group are in the same cluster), as is
> commonly the case (e.g., firm fixed effects are nested within firm,
> industry, or state clusters). See Wooldridge (2010, Chapter 20).
>
> Note xtreg's -dfadj- option:
>
> sysuse auto, clear
> gen time = _n
> xtset rep78 time
> areg mpg price, absorb(rep78) vce(cluster rep78)
> xtreg mpg price, fe vce(cluster rep78)
> xtreg mpg price, fe vce(cluster rep78) dfadj
>
> Ryan Kessler
>
> On Mon, Jan 14, 2013 at 5:11 PM, natalie rebolledo
> <na.rebolledo.02@gmail.com> wrote:
>> Dear statalist users,
>>
>> I'm trying to run a regression that accounts the influence of clusters
>> on the standard errors. I have been researching and I saw that there
>> are at least to basic solutions: one would be running an OLS with the
>> cluster option (-reg, cluster (clustervar)-) and a second option would
>> be -xtreg, fe i(groupvar)-. I have lots of clusters and observations
>> so I'm not too much worried about the assumption of assymptotic
>> consistency of this models.
>> The thing is that after my research I decided to go for the fixed
>> effect model and found out that this is equivalent to do -areg,
>> absorb(clustervar)-,
>> but I obtained different results between the two when I add the
>> cluster option, what I mean is that,
>>
>> -xtreg, fe i(clustervar)- and -areg, absorb(clustervar)-  are
>> equivalent, but when I run
>> -xtreg, fe i(clustervar) cluster(clustervar)- and - areg,
>> absorb(clustervar) cluster(clustervar)-
>> I found the same coefficients but different standard errors, why is
>> that? shouldn't the standard errors be equal too?
>> and also, between those two models which one is the best to account
>> for the presence of clusters in my dataset?
>>
>>
>> Thanks in advance,
>> Natalie Rebolledo
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