When should you use Newey West standard errors?
A Newey–West estimator is used in statistics and econometrics to provide an estimate of the covariance matrix of the parameters of a regression-type model when this model is applied in situations where the standard assumptions of regression analysis do not apply.
What are panel corrected standard errors?
The term panel-corrected standard errors refers to a class of estimators for the variance–covariance matrix of the OLS estimator when there are relatively few panels with many observations per panel. PCSEs account for heteroskedasticity, autocorrelation, or cross-sectional correlation.
What are Driscoll Kraay standard errors?
Driscoll-Kraay standard errors are robust to very general forms of cross-sectional (“spatial”) and temporal dependence when the time dimension becomes large. This nonparametric technique of estimating standard errors does not place any restrictions on the limiting behavior of the number of panels.
How do I get to Newey West in eviews?
To use the Newey-West HAC method, select the Options tab and select HAC (Newey-West) in the Coefficient covariance matrix drop-down. As before, you may use the checkbox to remove the default d.f. Adjustment. Press the HAC options button to change the options for the LRCOV estimate.
What do Newey West standard errors do?
newey produces Newey–West standard errors for coefficients estimated by OLS regression. The error structure is assumed to be heteroskedastic and possibly autocorrelated up to some lag. lag(#) specifies the maximum lag to be considered in the autocorrelation structure.
What does serially correlated mean?
Serial correlation is the relationship between a given variable and a lagged version of itself over various time intervals. It measures the relationship between a variable’s current value given its past values. A variable that is serially correlated indicates that it may not be random.
What is idiosyncratic error term?
In econometrics, “idiosyncratic error” is used to describe error—that is, unobserved factors that impact the dependent variable—from panel data that both changes over time and across units (individuals, firms, cities, etc.).
What is PCSE regression?
1. A panel regression model that considers the possibility of contemporaneous correlations, accounting for the deviations from spherical errors and allowing for better inference from linear models.
What is robust standard error?
“Robust” standard errors is a technique to obtain unbiased standard errors of OLS coefficients under heteroscedasticity. “Robust” standard errors have many labels that essentially refer all the same thing. Namely, standard errors that are computed with the sandwich estimator of variance.
What is robust standard errors Stata?
In Stata, simply appending vce(robust) to the end of regression syntax returns robust standard errors. “ vce” is short for “variance-covariance matrix of the estimators”. “ robust” indicates which type of variance-covariance matrix to calculate.
What does autocorrelation do to standard errors?
From the Wikipedia article on autocorrelation: While it does not bias the OLS coefficient estimates, the standard errors tend to be underestimated (and the t-scores overestimated) when the autocorrelations of the errors at low lags are positive.
What happens if errors are serially correlated?
When error terms from different (usually adjacent) periods (or cross-section observations) are correlated, the error term is serially correlated. Serial correlation occurs in time-series studies when the errors associated with a given period carry over into future periods.
How to find Newey-West standard errors in SAS?
In Gretl, the option –robust to several estimation commands (such as ols) in the context of a time-series dataset produces Newey–West standard errors. In SAS, the Newey-West corrected standard errors can be obtained in PROC AUTOREG and PROC MODEL
Is there a function for the Newey West estimator?
Software implementations. In R, the packages sandwich and plm include a function for the Newey–West estimator. In Stata, the command newey produces Newey–West standard errors for coefficients estimated by OLS regression. In MATLAB, the command hac in the Econometrics toolbox produces the Newey–West estimator (among others).
How to make Newey work on panel data?
The key to making -newey- work on panel data is the -force- option. Without the -force- option Stata issues an error message and refuses to calculate the estimator.
When did Whitney Newey and Kenneth West create the estimator?
It was devised by Whitney K. Newey and Kenneth D. West in 1987, although there are a number of later variants. The estimator is used to try to overcome autocorrelation (also called serial correlation), and heteroskedasticity in the error terms in the models, often for regressions applied to time series data.