It Is Advisable to Use Clustered Standard Errors in Panel

question 25

Multiple Choice

It is advisable to use clustered standard errors in panel regressions because

• A)without clustered standard errors, the OLS estimator is biased
• B)hypothesis testing can proceed in a standard way even if there are few entities (n is small)
• C)they are easier to calculate than homoskedasticity-only standard errors
• D)the fixed effects estimator is asymptotically normally distributed when n is large

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Definitions:

Mode

The value that appears most frequently in a dataset.

Sample Mean

The average value of a sample set of numbers, calculated by adding all the observations and dividing by the number of observations.

Observations

Data points or values recorded during an experiment or study.

Sample

A subset of individuals, items, or data from a larger population used to estimate characteristics of the whole population.