Quick question, two fixed effects

[Joh Sko]

Hello!

I would appreciate an answer to this question.
If I use xtreg, and I order the panel data with xtset, how do I do so that I have fixed effects for two variables?

In my case:

xtset country_id year
xtreg (Y-variable) (X-variable) (X-variable), fe

In this case, I get fixed effects for the variable 'country_id'. But how do so that I have fixed effects for year, and then year+countries?

I got an error message when I typed 'xtset historical_date (my other time variable) year', saying that "repeated time variables aren't allowed in the panel".


Thank you.

[Andrew Musau]

xtset country_id year
xtreg (Y-variable) (X-variable) (X-variable), fe

In this case, I get fixed effects for the variable 'country_id'. But how do so that I have fixed effects for year, and then year+countries?

In xtreg, you include a second set of fixed effects using dummies.

xtset depvar indepvars i.year, fe

If you got no errors from your xtset command, it means that you have panel data. Therefore, the combination of country and year defines a single observation and it is not possible to have country\(\times\) year fixed effects. Install reghdfe from SSC which will allow you to absorb multiple levels of fixed effects.

ssc install reghdfe
help reghdfe

[Joh Sko]

In xtreg, you include a second set of fixed effects using dummies.

xtset depvar indepvars i.year, fe

If you got no errors from your xtset command, it means that you have panel data. Therefore, the combination of country and year defines a single observation and it is not possible to have country\(\times\) year fixed effects. Install reghdfe from SSC which will allow you to absorb multiple levels of fixed effects.

ssc install reghdfe
help reghdfe

Thanks, but..

'xtset depvar indepvars i.year, fe' did not work for me. I just get an error saying 'factor-variable and time-series operators not allowed'


Using reghdfe, what would be the syntax for running xtreg with both year and country fixed effects?

[Joro Kolev]

You do

xtset id

xtreg y x i.year, fe

For the -reghdfe- read the help file, but the syntax will be something like

reghdfe y x, absorb(id year)

[Carlo Lazzaro]

Joh:
try:

xtset panelid year
xtreg depvar indepvars i.year, fe

The following toy-example includes both -xtreg,fe. and -reghdfe-:

. use "https://www.stata-press.com/data/r17/nlswork.dta"
(National Longitudinal Survey of Young Women, 14-24 years old in 1968)

. xtreg ln_wage i.year c.age##c.age, fe vce(cluster idcode)

Fixed-effects (within) regression               Number of obs     =     28,510
Group variable: idcode                          Number of groups  =      4,710

R-squared:                                      Obs per group:
     Within  = 0.1162                                         min =          1
     Between = 0.1078                                         avg =        6.1
     Overall = 0.0932                                         max =         15

                                                F(16,4709)        =      79.11
corr(u_i, Xb) = 0.0613                          Prob > F          =     0.0000

                             (Std. err. adjusted for 4,710 clusters in idcode)
------------------------------------------------------------------------------
             |               Robust
     ln_wage | Coefficient  std. err.      t    P>|t|     [95% conf. interval]
-------------+----------------------------------------------------------------
        year |
         69  |   .0647054   .0155249     4.17   0.000     .0342693    .0951415
         70  |   .0284423   .0264639     1.07   0.283    -.0234395     .080324
         71  |   .0579959   .0384111     1.51   0.131    -.0173078    .1332996
         72  |   .0510671   .0502675     1.02   0.310    -.0474808     .149615
         73  |   .0424104   .0624924     0.68   0.497    -.0801038    .1649247
         75  |   .0151376    .086228     0.18   0.861    -.1539096    .1841848
         77  |   .0340933   .1106841     0.31   0.758    -.1828994     .251086
         78  |   .0537334   .1232232     0.44   0.663    -.1878417    .2953084
         80  |   .0369475   .1473725     0.25   0.802    -.2519716    .3258667
         82  |   .0391687   .1715621     0.23   0.819    -.2971733    .3755108
         83  |    .058766   .1836086     0.32   0.749    -.3011928    .4187249
         85  |   .1042758   .2080199     0.50   0.616    -.3035406    .5120922
         87  |   .1242272   .2327328     0.53   0.594    -.3320379    .5804922
         88  |   .1904977   .2486083     0.77   0.444    -.2968909    .6778863
             |
         age |   .0728746    .013687     5.32   0.000     .0460416    .0997075
             |
 c.age#c.age |  -.0010113   .0001076    -9.40   0.000    -.0012224   -.0008003
             |
       _cons |   .3937532   .2469015     1.59   0.111    -.0902893    .8777957
-------------+----------------------------------------------------------------
     sigma_u |  .40275174
     sigma_e |  .30127563
         rho |  .64120306   (fraction of variance due to u_i)
------------------------------------------------------------------------------

. reghdfe ln_wage c.age##c.age, abs(idcode year) vce(cluster idcode)
(dropped 551 singleton observations)
(MWFE estimator converged in 8 iterations)

HDFE Linear regression                            Number of obs   =     27,959
Absorbing 2 HDFE groups                           F(   2,   4158) =      44.91
Statistics robust to heteroskedasticity           Prob > F        =     0.0000
                                                  R-squared       =     0.6593
                                                  Adj R-squared   =     0.5995
                                                  Within R-sq.    =     0.0115
Number of clusters (idcode)  =      4,159         Root MSE        =     0.3013

                             (Std. err. adjusted for 4,159 clusters in idcode)
------------------------------------------------------------------------------
             |               Robust
     ln_wage | Coefficient  std. err.      t    P>|t|     [95% conf. interval]
-------------+----------------------------------------------------------------
         age |   .0728746   .0136873     5.32   0.000     .0460402    .0997089
             |
 c.age#c.age |  -.0010113   .0001076    -9.39   0.000    -.0012224   -.0008003
             |
       _cons |   .4586164   .3651743     1.26   0.209    -.2573205    1.174553
------------------------------------------------------------------------------

Absorbed degrees of freedom:
-----------------------------------------------------+
 Absorbed FE | Categories  - Redundant  = Num. Coefs |
-------------+---------------------------------------|
      idcode |      4159        4159           0    *|
        year |        15           0          15     |
-----------------------------------------------------+
* = FE nested within cluster; treated as redundant for DoF computation

.

[Andrew Musau]

xtset depvar indepvars i.year, fe did not work for me. I just get an error saying 'factor-variable and time-series operators not allowed'

That's a typo. It should be xtreg as Joro Kolev and Carlo Lazzaro show above.