Standard errors for panel data models with unknown clusters

Jushan Bai, Sung Hoon Choi, Yuan Liao

Research output: Contribution to journalArticlepeer-review

Abstract

This paper develops a new standard-error estimator for linear panel data models. The proposed estimator is robust to heteroskedasticity, serial correlation, and cross-sectional correlation of unknown forms. The serial correlation is controlled by the Newey–West method. To control for cross-sectional correlations, we propose to use the thresholding method, without assuming the clusters to be known. We establish the consistency of the proposed estimator. Monte Carlo simulations show the method works well. An empirical application is considered.

Original languageEnglish (US)
JournalJournal of Econometrics
DOIs
StateAccepted/In press - 2020

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Clustered standard errors
  • Cross-sectional correlation
  • Heteroskedasticity
  • Panel data
  • Serial correlation
  • Thresholding

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