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Re: st: size of cluster robust SEs relative to regular SEs

From   Stas Kolenikov <[email protected]>
To   [email protected]
Subject   Re: st: size of cluster robust SEs relative to regular SEs
Date   Thu, 28 Oct 2010 11:21:57 -0400

On Thu, Oct 28, 2010 at 11:08 AM, David Quinn <[email protected]> wrote:
> I do only have two dozen clusters, so perhaps that is driving the
> issue. Maybe I am misunderstanding something, but I thought that if
> this was the case, the cluster robust standard errors would all be
> biased in the same way.  And by that I mean that all of the cluster
> robust standard errors would either be: A.) Smaller than the regular
> standard errors, or B.) Larger than the regular standard errors but
> not as large as they should be.  Hence, they would be exhibiting
> downward bias. But maybe I am wrong.
> Anyhow, if it is a case of intra-cluster correlation that is driving
> the issue instead, I am not sure what could be causing the alternating
> change in directions, since the pattern is not consistent across all
> regressors. Maybe it is a case of a mix of negative ICCs and positive
> ICCs canceling each other out?

Something like that. You have an interplay of the regression error
ICCs, regressor ICCs, and the ICCs of the combination x'e (while
E[x'e] = 0, it is a random vector with its own covariance). Depending
on the magnitudes of those ICCs and the severity of the small sample
issues, it can go either way. With larger # of clusters, you would
expect the standard errors to go up.

Stas Kolenikov, also found at
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