STICERD Econometrics Seminar Series
Standard Errors for Two-Way Clustering with Serially Correlated Time Effects
Harold Chiang (University of Wisconsin-Madison University o fWisconsin-Madison)
Thursday 02 December 2021 14:00 - 15:30
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Unless otherwise specified, in-person seminars are open to the public.
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About this event
We propose improved standard errors and an asymptotic distribution theory for two-way clustered panels. Our proposed estimator and theory allow for arbitrary serial dependence in the common time effects, which is excluded by existing two-way methods, including the popular two-way cluster standard errors of Cameron, Gelbach, and Miller (2011) and the cluster bootstrap of Menzel (2021). Our asymptotic distribution theory is the first which allows for this level of inter-dependence among the observations. Under weak regularity conditions, we demonstrate that the least squares estimator is asymptotically normal, our proposed variance estimator is consistent, and t-ratios are asymptotically standard normal, permitting conventional inference. We present simulation evidence that confidence intervals constructed with our proposed standard errors obtain superior coverage performance relative to existing methods. We illustrate the relevance of the proposed method in an empirical application to a standard Fama-French three-factor regression.
STICERD Econometrics seminars are held on Thursdays in term time at 14.00-15.30, ONLINE, unless specified otherwise.
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