Clustered errors

For econometric discussions not necessarily related to EViews.

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MalaMi
Posts: 2
Joined: Mon Nov 22, 2010 2:55 am

Re: Clustered errors

Postby MalaMi » Mon Nov 22, 2010 1:59 pm

Thanks!

Sielenna
Posts: 7
Joined: Tue May 03, 2011 1:23 am

Re: Clustered errors

Postby Sielenna » Wed Mar 21, 2012 7:58 am

Hi,

I have a cross-sectional dataset of 130 observations. These observations are selected over 20 different countries, for different periods in time. I do not have an equal number of observations for each country, nor do I have equal time periods for each observations.
Eg: 3 observations for country 1, [1980-1983], [ 2000, 2004] and [2006-2009] , 2 observations for country 2: [2005], [2007-2009], and so on.

I have included "fixed effect" dummies for each country, but I was wondering if I should also consider " country-clustered standard errors". I want to allow my errors to be correlated with the other observations of the same country, but not with observations from a different country. White-period standard errors look appropriate but unfortunately you can only apply them in a panel dataset. How can I adjust these standard errors for my case?

Kind greetings,

zeca
Posts: 15
Joined: Sun Jul 07, 2013 7:21 am

Re: Clustered errors

Postby zeca » Sun Jul 07, 2013 8:09 am

Hi,
My sample have the 100 largest publicly traded banks in Europe from 1996 to 2011 (a total of 1133 observations). Banks are from 25 diferent countries.
I'm using eviews to estimate a regression in which Leverage is the dependent variable and then I have 5 explanatory variables (please see attached the equation).

Following the available literature I have to use time and country fixed effects (Ct and Cc). Regardind time fixed effects I found it easy (panel options / Effects specification / Period:Fixed)
Q1: Could you give me some guidelines to deal with country fixed effects in eviews? (One of my available variables is country)

Two aditional questions:
Q2: what should I do to adjust the standard errors for clustering at the bank level?
Q3: variable Div is a dummy (1 if bank pays dividends in a given period, 0 otherwise). Once is a dummy it has the same processing and interpretation of remaining variables?

Many thanks!
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EViews Glenn
EViews Developer
Posts: 2646
Joined: Wed Oct 15, 2008 9:17 am

Re: Clustered errors

Postby EViews Glenn » Mon Jul 08, 2013 11:56 am

To compute clustering in the cross-section workfile, simple structure as a non-dated panel using the variable you want to cluster over as the cross-section identifier.

EViews Glenn
EViews Developer
Posts: 2646
Joined: Wed Oct 15, 2008 9:17 am

Re: Clustered errors

Postby EViews Glenn » Mon Jul 08, 2013 11:59 am

I must admit I'm finding it difficult to follow the multiple conversations in this single thread. In general, one should create a new topic/thread, rather than hijacking an existing one, unless the comments pertain to the early discussion.

On banking. How do you have the workfile structured?

zeca
Posts: 15
Joined: Sun Jul 07, 2013 7:21 am

Re: Clustered errors

Postby zeca » Mon Jul 08, 2013 2:36 pm

EViews Glenn wrote:I must admit I'm finding it difficult to follow the multiple conversations in this single thread. In general, one should create a new topic/thread, rather than hijacking an existing one, unless the comments pertain to the early discussion.

On banking. How do you have the workfile structured?


Thanks for the advice. I'll move it to a new topic

mfb
Posts: 28
Joined: Sun Apr 14, 2013 8:16 am

Re: Clustered errors

Postby mfb » Wed Jul 10, 2013 4:13 am

Could I interpret all you said in the following way, assuming panel data structured with N cross-sections (firms, countries, etc) over T periods (years, etc):

White Cross-section:
N equations giving a NxN error matrix. White Cross-section robust errors assumes and corrects for diagonal heteroskedastic variances and non-zero off-diagonal covariances.
It’s like when some countries are somewhat constant over time while others may vary much over time. Also, some countries may move together up or down while others may be moving independently from the rest.

White Period:
T equations giving a TxT error matrix. White Period robust errors assumes and corrects for diagonal heteroskedastic variances and non-zero off-diagonal covariances.
It’s like there are calm years when each country behaves like all other countries and wild years when you have countries moving haphazardly apart from each other. Also, there may be some persistence over time: wild years tend to follow wild years and calm years tend to follow calm years.

White Diagonal:
NTxNT error matrix. White Diagonal assumes and corrects for individual observations heteroskedasticity but makes no assumptions whatsoever concerning covariances of any type.


Any of these options can be used before or after controlling for Fixed or Random Effects, cross-wise or period-wise (or cross-wise and period-wise).

Is this ok?

mfb
Posts: 28
Joined: Sun Apr 14, 2013 8:16 am

Re: Clustered errors

Postby mfb » Tue Jul 16, 2013 3:36 pm

Could the Eviews team please provide some feedback on whether my interpretation as stated in my post of Wed July 10 is ok in terms of Eviews implementation?
Thanks,

EViews Gareth
Fe ddaethom, fe welon, fe amcangyfrifon
Posts: 12647
Joined: Tue Sep 16, 2008 5:38 pm

Re: Clustered errors

Postby EViews Gareth » Tue Jul 16, 2013 3:40 pm

The EViews team does not offer econometric advice (no matter how many times, or how differently you ask).
Follow us on Twitter @IHSEViews

mfb
Posts: 28
Joined: Sun Apr 14, 2013 8:16 am

Re: Clustered errors

Postby mfb » Wed Jul 17, 2013 3:28 am

I conclude that my interpretation as in my post of Wed July 10 corresponds exactly to what Eviews does.
Thanks.

paris223
Posts: 1
Joined: Sat May 31, 2014 9:38 am

Re: Clustered errors

Postby paris223 » Sat May 31, 2014 9:46 am

I have the same issue. I am trying to use clustered standard errors for an unstructured file. Could anyone help with some guiding instructions for how to do this in Eviews 7? i am pretty nw with Eviews but I need to use it urgently for my thesis.

Thanks a lot in advance!

adc
Posts: 2
Joined: Fri Feb 13, 2015 9:09 am

Re: Clustered errors

Postby adc » Sun Feb 22, 2015 2:00 am

I get the difference now between white cross-section and white-period, but could you explain what is the difference between white-period and period SUR?

many thanks.

EViews Glenn
EViews Developer
Posts: 2646
Joined: Wed Oct 15, 2008 9:17 am

Re: Clustered errors

Postby EViews Glenn » Mon Feb 23, 2015 1:00 pm

The former are adjustments to the computation of the standard errors that make them robust to cross-section intercluster covariances where we do not assume common structure on the covariances. The latter robust method assumes that the intercluster covariances are common across cross-sections, estimates those covariances, and then adjusts the standard error calculations accordingly. I believe that this is discussed in the manual.


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