Advanced Search
MyIDEAS: Login

Heteroskedasticity, autocorrelation, and spatial correlation robust inference in linear panel models with fixed-effects

Contents:

Author Info

  • Vogelsang, Timothy J.

Abstract

This paper develops an asymptotic theory for test statistics in linear panel models that are robust to heteroskedasticity, autocorrelation and/or spatial correlation. Two classes of standard errors are analyzed. Both are based on nonparametric heteroskedasticity autocorrelation (HAC) covariance matrix estimators. The first class is based on averages of HAC estimators across individuals in the cross-section, i.e. “averages of HACs”. This class includes the well known cluster standard errors analyzed by Arellano (1987) as a special case. The second class is based on the HAC of cross-section averages and was proposed by Driscoll and Kraay (1998). The ”HAC of averages” standard errors are robust to heteroskedasticity, serial correlation and spatial correlation but weak dependence in the time dimension is required. The “averages of HACs” standard errors are robust to heteroskedasticity and serial correlation including the nonstationary case but they are not valid in the presence of spatial correlation. The main contribution of the paper is to develop a fixed-b asymptotic theory for statistics based on both classes of standard errors in models with individual and possibly time fixed-effects dummy variables. The asymptotics is carried out for large time sample sizes for both fixed and large cross-section sample sizes. Extensive simulations show that the fixed-b approximation is usually much better than the traditional normal or chi-square approximation especially for the Driscoll–Kraay standard errors. The use of fixed-b critical values will lead to more reliable inference in practice especially for tests of joint hypotheses.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0304407611002326
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 166 (2012)
Issue (Month): 2 ()
Pages: 303-319

as in new window
Handle: RePEc:eee:econom:v:166:y:2012:i:2:p:303-319

Contact details of provider:
Web page: http://www.elsevier.com/locate/jeconom

Related research

Keywords: Panel data; HAC estimator; Kernel; Bandwidth; Fixed-b asymptotics;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, vol. 92(1), pages 1-45, September.
  2. Jeffrey M. Wooldridge, 2003. "Cluster-Sample Methods in Applied Econometrics," American Economic Review, American Economic Association, vol. 93(2), pages 133-138, May.
  3. Daniel Hoechle, 2007. "Robust standard errors for panel regressions with cross-sectional dependence," Stata Journal, StataCorp LP, vol. 7(3), pages 281-312, September.
  4. Yixiao Sun & Peter C. B. Phillips & Sainan Jin, 2008. "Optimal Bandwidth Selection in Heteroskedasticity-Autocorrelation Robust Testing," Econometrica, Econometric Society, vol. 76(1), pages 175-194, 01.
  5. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May.
  6. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-36, May-June.
  7. Wolfers, Justin, 2003. "Did Unilateral Divorce Laws Raise Divorce Rates? A Reconciliation and New Results," Research Papers 1819, Stanford University, Graduate School of Business.
  8. Bester, C. Alan & Conley, Timothy G. & Hansen, Christian B., 2011. "Inference with dependent data using cluster covariance estimators," Journal of Econometrics, Elsevier, vol. 165(2), pages 137-151.
  9. Hashimzade, Nigar & Vogelsang, Timothy, 2006. "Fixed-b Asymptotic Approximation of the Sampling Behavior of Nonparametric Spectral Density Estimators," Working Papers 06-04, Cornell University, Center for Analytic Economics.
  10. Kim, Min Seong & Sun, Yixiao, 2011. "Spatial heteroskedasticity and autocorrelation consistent estimation of covariance matrix," Journal of Econometrics, Elsevier, vol. 160(2), pages 349-371, February.
  11. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  12. Ibragimov, Rustam & Müller, Ulrich K., 2010. "t-Statistic Based Correlation and Heterogeneity Robust Inference," Journal of Business & Economic Statistics, American Statistical Association, vol. 28(4), pages 453-468.
  13. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
  14. Mitchell A. Petersen, 2005. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," NBER Working Papers 11280, National Bureau of Economic Research, Inc.
  15. Jin Young Lee & Gary Solon, 2011. "The Fragility of Estimated Effects of Unilateral Divorce Laws on Divorce Rates," NBER Working Papers 16773, National Bureau of Economic Research, Inc.
  16. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
  17. Kelejian, Harry H. & Prucha, Ingmar R., 2007. "HAC estimation in a spatial framework," Journal of Econometrics, Elsevier, vol. 140(1), pages 131-154, September.
  18. Kiefer, Nicholas M. & Vogelsang, Timothy J., 2005. "A New Asymptotic Theory for Heteroskedasticity-Autocorrelation Robust Tests," Working Papers 05-08, Cornell University, Center for Analytic Economics.
  19. Arellano, M, 1987. "Computing Robust Standard Errors for Within-Groups Estimators," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(4), pages 431-34, November.
  20. Hansen, Christian B., 2007. "Asymptotic properties of a robust variance matrix estimator for panel data when T is large," Journal of Econometrics, Elsevier, vol. 141(2), pages 597-620, December.
  21. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Carmen Pilar Martí Ballester, 2014. "Determinants of equity pension plan flows," Estudios de Economia, University of Chile, Department of Economics, vol. 41(1 Year 20), pages 125-148, June.
  2. Hoechle, Daniel & Schmid, Markus & Zimmermann, Heinz, 2012. "Measuring Long-term Performance: a Regression Based Generalization of the Calendar Time Portfolio Approach," Working Papers on Finance 1216, University of St. Gallen, School of Finance.
  3. Agnesens, Julius, 2013. "A statistically robust decomposition of mutual fund performance," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3867-3877.
  4. Preinerstorfer, David & Pötscher, Benedikt M., 2013. "On Size and Power of Heteroscedasticity and Autocorrelation Robust Tests," MPRA Paper 45675, University Library of Munich, Germany.
  5. Hagen, Tobias & Waldeck, Stefanie, 2014. "Using panel econometric methods to estimate the effect of milk consumption on the mortality rate of prostate and ovarian cancer," Working Paper Series: Business and Law 03, Frankfurt University of Applied Sciences, Faculty of Business and Law.
  6. Kim, Min Seong & Sun, Yixiao, 2013. "Heteroskedasticity and spatiotemporal dependence robust inference for linear panel models with fixed effects," Journal of Econometrics, Elsevier, vol. 177(1), pages 85-108.
  7. Lee Jin Young & Solon Gary, 2011. "The Fragility of Estimated Effects of Unilateral Divorce Laws on Divorce Rates," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-11, August.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:econom:v:166:y:2012:i:2:p:303-319. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.