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st: Clustering Problem

From   statachris <>
Subject   st: Clustering Problem
Date   Fri, 22 May 2009 09:47:23 +0200

Good morning,

to exploit a (quasi-) experimental setting, I would like to run an IV 
regression in a setting in which there is clustering with only 2 
clusters, and furthermore the two clusters correspond to the two values 
of the instrument dummy.

It doesn't seem to make much sense here to use cluster-adjusted standard 
errors. But since the t-stats without cluster-adjustment are very large 
indeed, I was wondering whether I could make an argument that they would 
remain significant even if I could and did adjust for the clustering. To 
do so, I would need to have an idea by what factor the standard errors 
would have to be multiplied if I did adjust them. So I was wondering if 
there exists any formula or rule-of-thumb that would give me an idea of 

Or is there another, better way to deal with this?

Many thanks!


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