Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data
John Driscoll () and
Aart Kraay ()
The Review of Economics and Statistics, 1998, vol. 80, issue 4, 549-560
Many panel data sets encountered in macroeconomics, international economics, regional science, and finance are characterized by cross-sectional or "spatial" dependence. Standard techniques that fail to account for this dependence will result in inconsistently estimated standard errors. In this paper we present conditions under which a simple extension of common nonparametric covariance matrix estimation techniques yields standard error estimates that are robust to very general forms of spatial and temporal dependence as the time dimension becomes large. We illustrate the relevance of this approach using Monte Carlo simulations and a number of empirical examples. © 1998 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog
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Persistent link: https://EconPapers.repec.org/RePEc:tpr:restat:v:80:y:1998:i:4:p:549-560
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