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Inference with dependent data using cluster covariance estimators

Author

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  • Bester, C. Alan
  • Conley, Timothy G.
  • Hansen, Christian B.

Abstract

This paper presents an inference approach for dependent data in time series, spatial, and panel data applications. The method involves constructing t and Wald statistics using a cluster covariance matrix estimator (CCE). We use an approximation that takes the number of clusters/groups as fixed and the number of observations per group to be large. The resulting limiting distributions of the t and Wald statistics are standard t and F distributions where the number of groups plays the role of sample size. Using a small number of groups is analogous to ‘fixed-b’ asymptotics of Kiefer and Vogelsang (2002, 2005) (KV) for heteroskedasticity and autocorrelation consistent inference. We provide simulation evidence that demonstrates that the procedure substantially outperforms conventional inference procedures.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:econom:v:165:y:2011:i:2:p:137-151
    DOI: 10.1016/j.jeconom.2011.01.007
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    More about this item

    Keywords

    HAC; Panel; Robust; Spatial;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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