NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Bootstrap-Based Improvements for Inference with Clustered Errors

A. Colin Cameron, Jonah B. Gelbach, Douglas L. Miller

NBER Technical Working Paper No. 344
Issued in September 2007
NBER Program(s):   TWP

Researchers have increasingly realized the need to account for within-group dependence in estimating standard errors of regression parameter estimates. The usual solution is to calculate cluster-robust standard errors that permit heteroskedasticity and within-cluster error correlation, but presume that the number of clusters is large. Standard asymptotic tests can over-reject, however, with few (5-30) clusters. We investigate inference using cluster bootstrap-t procedures that provide asymptotic refinement. These procedures are evaluated using Monte Carlos, including the example of Bertrand, Duflo and Mullainathan (2004). Rejection rates of ten percent using standard methods can be reduced to the nominal size of five percent using our methods.

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Document Object Identifier (DOI): 10.3386/t0344

Published: August 2008, Vol. 90, No. 3, Pages 414-427 Posted Online July 22, 2008. (doi:10.1162/rest.90.3.414)

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