Heteroskedasticity-Robust Standard Errors for Fixed Effects Panel Data Regression
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CitationStock, James H., and Mark W. Watson. 2008. “Heteroskedasticity-Robust Standard Errors for Fixed Effects Panel Data Regression.” Econometrica 76 (1) (January): 155–174. doi:10.1111/j.0012-9682.2008.00821.x.
AbstractThe conventional heteroskedasticity-robust (HR) variance matrix estimator for cross-sectional regression (with or without a degrees-of-freedom adjustment), applied to the fixed-effects estimator for panel data with serially uncorrelated errors, is inconsistent if the number of time periods T is fixed (and greater than 2) as the number of entities n increases. We provide a bias-adjusted HR estimator that is √nT-consistent under any sequences (n T ) in which n and/or T increase to ∞. This estimator can be extended to handle serial correlation of fixed order.
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