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An equicorrelation Moulton factor in the presence of arbitrary intra-cluster correlation

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  • Montes-Rojas, Gabriel

Abstract

This note highlights the potential pitfalls of using an equicorrelation model to estimate standard errors when the true model has arbitrary intra-cluster correlation. It derives a generalized equicorrelation Moulton factor that quantifies the potential biases in standard errors for OLS estimators. As with the famous Moulton factor, the key role is not played by the correlation of the error terms but rather by the intra-correlation of the covariates themselves.

Suggested Citation

  • Montes-Rojas, Gabriel, 2016. "An equicorrelation Moulton factor in the presence of arbitrary intra-cluster correlation," Economics Letters, Elsevier, vol. 145(C), pages 221-224.
  • Handle: RePEc:eee:ecolet:v:145:y:2016:i:c:p:221-224
    DOI: 10.1016/j.econlet.2016.06.022
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    References listed on IDEAS

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    1. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    2. 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 431-434, November.
    3. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588.
    4. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769, September.
    5. Moulton, Brent R, 1987. "Diagnostics for Group Effects in Regression Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(2), pages 275-282, April.
    6. A. Colin Cameron & Douglas L. Miller, 2015. "A Practitioner’s Guide to Cluster-Robust Inference," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 317-372.
    7. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
    8. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-338, May.
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    1. repec:eee:jmvana:v:165:y:2018:i:c:p:101-116 is not listed on IDEAS

    More about this item

    Keywords

    Microeconometrics; Clusters; Aggregate variables; Moulton factor;

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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