Abstract

http://ssrn.com/abstract=1708263
 
 

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Inference with Dependent Data Using Cluster Covariance Estimators


Alan Bester


University of Chicago Graduate School of Business

Timothy G. Conley


University of Chicago - Booth School of Business

Christian Hansen


University of Chicago Graduate School of Business

November 12, 2010


Abstract:     
This paper presents an inference approach for dependent data in time series, spatial, and panel data applications. The method involves constructing and Wald statistics using a cluster covariance matrix estimator (CCE). We use an approximation that takes the number of clusters/groups as fixed and the number of observations per group to be large. The resulting limiting distributions of the t and Wald statistics are standard t and F distributions where the number of groups plays the role of sample size. Using a small number of groups is analogous to 'fixed-b' asymptotics of Kiefer and Vogelsang (2002, 2005) (KV) for heteroskedasticity and autocorrelation consistent inference. We also consider the case where the number of groups goes to infinity and obtain results similar to those for standard heteroskedasticity and autocorrelation consistent (HAC) estimators under the usual HAC asymptotics. We provide simulation evidence that demonstrates the procedure substantially outperforms conventional inference procedures.

Keywords: HAC, panel, robust, spatial

JEL Classification: C12, C21, C22, C23

working papers series


Not Available For Download

Date posted: November 14, 2010  

Suggested Citation

Bester, Alan and Conley, Timothy G. and Hansen, Christian, Inference with Dependent Data Using Cluster Covariance Estimators (November 12, 2010). Available at SSRN: http://ssrn.com/abstract=1708263

Contact Information

Alan Bester
University of Chicago Graduate School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1714 (Phone)
Timothy G. Conley
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7281 (Phone)
Christian Hansen (Contact Author)
University of Chicago Graduate School of Business ( email )
Chicago, IL 60637
United States
773-834-1702 (Phone)
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