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Wild Bootstrap Inference for Wildly Different Cluster Sizes

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  • James G. Mackinnon
  • Matthew D. Webb

Abstract

The cluster robust variance estimator (CRVE) relies on the number of clusters being sufficiently large. Monte Carlo evidence suggests that the "rule of 42" is not true for unbalanced clusters. Rejection frequencies are higher for datasets with 50 clusters proportional to U.S. state populations than with 50 balanced clusters. Using critical values based on the wild cluster bootstrap performs much better. However, this procedure fails when a small number of clusters is treated. We explain why CRVE t statistics and the wild bootstrap fail in this case, study the "effective number" of clusters, and simulate placebo laws with dummy variable regressors.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • James G. Mackinnon & Matthew D. Webb, 2017. "Wild Bootstrap Inference for Wildly Different Cluster Sizes," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(2), pages 233-254, March.
  • Handle: RePEc:wly:japmet:v:32:y:2017:i:2:p:233-254
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    References listed on IDEAS

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    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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