Transcription of A Practitioner’s Guide to Cluster-Robust Inference
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A Practitioner’s Guide to Cluster-Robust Inference
1 A Practitioner s Guide to Cluster-Robust Inference A. Colin Cameron and Douglas L. Miller Abstract We consider statistical Inference for regression when data are grouped into clusters, with regression model errors independent across clusters but correlated within clusters. Examples include data on individuals with clustering on village or region or other category such as industry, and state-year differences-in-differences studies with clustering on state. In such settings default standard errors can greatly overstate estimator precision. Instead, if the number of clusters is large, statistical Inference after OLS should be based on Cluster-Robust standard errors. We outline the basic method as well as many complications that can arise in practice. These include cluster-specific fixed effects, few clusters, multi-way clustering, and estimators other than OLS. Colin Cameron is a Professor in the Department of Economics at UC- Davis.
Section V considers clustering when there is more than one way to do so and these ways are not nested in each other. Section VI considers how to adjust inference when there are just a few clusters as, without adjustment, test statistics based on the cluster-robust standard errors over-reject and confidence intervals are too narrow. Section VII
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