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Jackknife inference with two-way clustering

Authors :
MacKinnon, James G.
Nielsen, Morten Ørregaard
Webb, Matthew D.
Publication Year :
2024

Abstract

For linear regression models with cross-section or panel data, it is natural to assume that the disturbances are clustered in two dimensions. However, the finite-sample properties of two-way cluster-robust tests and confidence intervals are often poor. We discuss several ways to improve inference with two-way clustering. Two of these are existing methods for avoiding, or at least ameliorating, the problem of undefined standard errors when a cluster-robust variance matrix estimator (CRVE) is not positive definite. One is a new method that always avoids the problem. More importantly, we propose a family of new two-way CRVEs based on the cluster jackknife. Simulations for models with two-way fixed effects suggest that, in many cases, the cluster-jackknife CRVE combined with our new method yields surprisingly accurate inferences. We provide a simple software package, twowayjack for Stata, that implements our recommended variance estimator.

Subjects

Subjects :
Economics - Econometrics

Details

Database :
arXiv
Publication Type :
Report
Accession number :
edsarx.2406.08880
Document Type :
Working Paper