Re: Re: Re: st: inconsistent results for two-dimensions fixed effects

[Christopher Baum <kit.baum@bc.edu>]

<>
On Aug 17, 2013, at 2:33 AM, Nadia wrote:

> if the panel is set to firm and year
> to get two dimensions fixed effect using xtreg, the right way is to run :
> xtreg DV IV i.year, fe vce (cluster firm) , but not xtreg DV IV
> i.year, fe  because the latter does not control for correlation of
> error terms within clusters.
> 
> Also, it is feasible to use :  ivreg2  DV IV,cluster (firm year)
> IV is independent variable (not instrument)
> 
> 
> Finally, reg DV IV i.year i.firm does not provide the same out as the
> previous two because cluster-robust VCE is not applicable in this
> case. However, it will give the same result as xtreg DV IV i.year, fe

Re first point: correct.

Re second point: you can run that regression with ivreg2, assuming you have enough firms and years,
but it is almost surely misspecified in omitting firm fixed effects (the F-test at the foot of xtreg, fe output
tests that suspicion). I would suggest using

tsset firm year
xtivreg2 DV IV, clu(firm year) fe

and test for the significance of a set of year dummies as well. Warning: you cannot use factor variable notation
for the year dummies. You could use the xi: prefix to do so.

Kit


Kit Baum   |   Boston College Economics & DIW Berlin   |   http://ideas.repec.org/e/pba1.html
                             An Introduction to Stata Programming  |   http://www.stata-press.com/books/isp.html
  An Introduction to Modern Econometrics Using Stata  |   http://www.stata-press.com/books/imeus.html
                                                                                                   | http://www.crup.com.cn/Item/111779.aspx	


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