Econometrica: Jan 2008, Volume 76, Issue 1
Heteroskedasticity‐Robust Standard Errors for Fixed Effects Panel Data Regression
James H. Stock, Mark W. WatsonThe 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 is fixed (and greater than 2) as the number of entities increases. We provide a bias‐adjusted HR estimator that is ‐consistent under any sequences (, ) in which and/or increase to ∞. This estimator can be extended to handle serial correlation of fixed order.
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