Heteroskedasticity-Robust Standard Errors for Fixed Effects Panel Data Regression

James H. Stock and Mark Watson

No 323, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: The 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 two) as the number of entities n increases. We provide a bias-adjusted HR estimator that is (nT)1/2 -consistent under any sequences (n, T) in which n and/or T increase to ∞.The 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 two) as the number of entities n increases. We provide a bias-adjusted HR estimator that is (nT)1/2 -consistent under any sequences (n, T) in which n and/or T increase to ∞.

JEL-codes: C12 C23 (search for similar items in EconPapers)
Date: 2006-06
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ict
Note: TWP
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Citations: View citations in EconPapers (38)

Published as Stock, James H. and Mark W. Watson. "Heteroskedasticity-Robust Standard Errors for Fixed Effects Panel Data Regression." Econometrica 76, 1 (2008): 155-174.

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Journal Article: Heteroskedasticity-Robust Standard Errors for Fixed Effects Panel Data Regression (2008)
Working Paper: Heteroskedasticity-Robust Standard Errors for Fixed Effects Panel Data Regression (2008)
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