xtscc
Robust standard errors for panel regressions with cross-sectional dependence. I present a new Stata program, xtscc, that estimates pooled or- dinary least-squares/weighted least-squares regression and fixed-effects (within) regression models with Driscoll and Kraay (Review of Economics and Statistics 80: 549–560) standard errors. By running Monte Carlo simulations, I compare the finite-sample properties of the cross-sectional dependence–consistent Driscoll– Kraay estimator with the properties of other, more commonly used covariance ma- trix estimators that do not account for cross-sectional dependence. The results in- dicate that Driscoll–Kraay standard errors are well calibrated when cross-sectional dependence is present. However, erroneously ignoring cross-sectional correlation in the estimation of panel models can lead to severely biased statistical results. I illustrate the xtscc program by considering an application from empirical finance. Thereby, I also propose a Hausman-type test for fixed effects that is robust to general forms of cross-sectional and temporal dependence.
Keywords for this software
References in zbMATH (referenced in 7 articles , 1 standard article )
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