Centering and reference groups for estimates of fixed effects: Modifications to felsdvreg

Kata Mihaly, Daniel F. McCaffrey (), J. R. Lockwood () and Tim Sass ()
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Daniel F. McCaffrey: The RAND Corporation
J. R. Lockwood: The RAND Corporation

Stata Journal, 2010, vol. 10, issue 1, 82-103

Abstract: Availability of large, multilevel longitudinal databases in various fields including labor economics (with workers and firms observed over time) and ed- ucation research (with students and teachers observed over time) has increased the application of panel-data models with multiple levels of fixed-effects. Existing software routines for fitting fixed-effects models were not designed for applications in which the primary interest is obtaining estimates of any of the fixed-effects parameters. Such routines typically report estimates of fixed effects relative to arbitrary holdout units. Contrasts to holdout units are not ideal in cases where the fixed-effects parameters are of interest because they can change capriciously, they do not correspond to the structural parameters that are typically of inter- est, and they are inappropriate for empirical Bayes (shrinkage) estimation. We develop an improved parameterization of fixed-effects models using sum-to-zero constraints that provides estimates of fixed effects relative to mean effects within well-defined reference groups (e.g., all firms of a given type or all teachers of a given grade) and provides standard errors for those estimates that are appropriate for shrinkage estimation. We implement our parameterization in a Stata routine called felsdvregdm by modifying the felsdvreg routine designed for fitting high- dimensional fixed-effects models. We demonstrate our routine with an example dataset from the Florida Education Data Warehouse. Copyright 2010 by StataCorp LP.

Keywords: felsdvreg; felsdvregdm; fixed effects; linked employer–employee data; longitudinal achievement data (search for similar items in EconPapers)
Date: 2010
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