Robust Inference by Sub-sampling

Nasreen Nawaz

Journal of Quantitative Economics, 2020, vol. 18, issue 3, No 8, 657-681

Abstract: Abstract This paper provides a simple technique of carrying out inference robust to serial correlation, heteroskedasticity and spatial correlation on the estimators which follow an asymptotic normal distribution. The idea is based on the fact that the estimates from a larger sample tend to have a smaller variance which can be expressed as a function of the variance of the estimator from smaller subsamples. The major advantage of the technique other than the ease of application and simplicity is its finite sample performance both in terms of the empirical null rejection probability as well as the power of the test. It does not restrict the data in terms of structure in any way and works pretty well for any kind of heteroskedasticity, autocorrelation and spatial correlation in a finite sample. Furthermore, unlike theoretical HAC robust techniques available in the existing literature, it does not require any kernel estimation and hence eliminates the discretion of the analyst to choose a specific kernel and bandwidth. The technique outperforms the Ibragimov and Müller (2010) approach in terms of null rejection probability as well as the local asymptotic power of the test.

Keywords: HAC; Spatial correlation; Robust; Inference (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s40953-020-00207-x

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