Implementing groupwise – heteroskedasticity – robust – variance – covariance estimators in Fxed-effects panel-data regression with Stata

Giovanni Bruno
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Giovanni Bruno: Bocconi University

Italian Stata Users' Group Meetings 2024 from Stata Users Group

Abstract: Stock and Watson (2008) prove that the plain White heteroskedasticity-robust VCE is generally inconsistent for Fxed T , N -> ∞ in Fxed-effects panel-data regression. Bruno (2024) proves that the aforementioned VCE is (Fxed T , N _> ∞) consistent under groupwise heteroskedasticity (GH), that is, when the conditional variance of the idiosyncratic error is time-invariant but can vary across individuals. As is well known, the vce(robust) option of xtreg in Stata implements the cluster–robust VCE, not the White VCE. In this talk, I show simple Stata procedures to implement the White VCE and a second GH-robust VCE in Fxed-effects panel-data regression. Monte Carlo experiments prove that both VCEs, under GH, have good Fnite-sample properties, compared to the bias- adjusted VCE by Stock and Watson and the cluster–robust VCE.

Date: 2024-05-09
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http://repec.org/isug2024/Italy24_Bruno.pdf presentation materials (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:boc:isug24:08

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