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Evaluating one-way and two-way cluster–robust covariance matrix estimates

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Author Info

  • Christopher F Baum

    ()
    (Boston College
    DIW Berlin)

  • Austin Nichols

    (Urban Institute)

  • Mark E Schaffer

    (IZA
    Heriot-Watt University
    CEPR)

Abstract

Although cluster–robust standard errors are now recognized as essential in a panel-data context, official Stata only supports clusters that are nested within panels. This rules out the possibility of defining clusters in the time dimension, and modeling contemporaneous dependence of panel units’ error processes. We build upon recent analytical developments that define two-way (and conceptually, n-way) clustering, and the 2010 implementation of two-way clustering in the widely used ivreg2 and xtivreg2 packages. We present examples of the utility of one-way and two-way clustering using Monte Carlo techniques, a comparison with alternative approaches to modeling error dependence, and consider tests for clustering of errors.

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File URL: http://fmwww.bc.edu/repec/dsug2011/desug11_schaffer.pdf
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Bibliographic Info

Paper provided by Stata Users Group in its series German Stata Users' Group Meetings 2011 with number 02.

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Date of creation: 23 Jul 2011
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Handle: RePEc:boc:dsug11:02

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Web page: http://www.stata.com/meeting/germany11/
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Cited by:
  1. Abebe, Gumataw K. & Bijman, Jos & Kemp, Ron & Omta, Onno & Tsegaye, Admasu, 2013. "Contract farming configuration: Smallholders’ preferences for contract design attributes," Food Policy, Elsevier, vol. 40(C), pages 14-24.
  2. Silvia Sacchetti & Ermanno C. Tortia, 2012. "A “Human Growth” Perspective on Organizational Resources and Firm Performance," Department of Economics Working Papers 1209, Department of Economics, University of Trento, Italia.
  3. Andréas Heinen & Malika Hamadi & Guillermo Baquero, 2013. "Competition, Loan Rates and Information Dispersion in Microcredit Markets," Working Paper CRENoS 201314, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

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