Heteroskedasticity-Robust Standard Errors for Fixed Effects Panel Data Regression
27 Pages Posted: 29 Jun 2006 Last revised: 2 Jan 2023
Date Written: June 2006
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 ∞.
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