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Heteroskedasticity‐Robust Standard Errors for Fixed Effects Panel Data Regression
Author(s) -
Stock James H.,
Watson Mark W.
Publication year - 2008
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.1111/j.0012-9682.2008.00821.x
Subject(s) - heteroscedasticity , econometrics , robust regression , panel data , fixed effects model , economics , statistics , regression , mathematics
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 2) as the number of entities n increases. We provide a bias‐adjusted HR estimator that is ‐consistent under any sequences ( n , T ) in which n and/or T increase to ∞. This estimator can be extended to handle serial correlation of fixed order.