Consistent Covariance Matrix Estimation with Spatially Dependent Panel Data

Driscoll, John C.; Kraay, Aart C.

doi:10.1162/003465398557825

Cited by 6,865Spatial and Panel Data AnalysisStatistical Methods and InferenceFinancial Risk and Volatility Modeling

Consistent Covariance Matrix Estimation with Spatially Dependent Panel Data

Driscoll, John C., Kraay, Aart C.·1998·Review of Economics and Statistics

DOI 10.1162/003465398557825

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Abstract

Many panel data sets encountered in macroeconomics, international economics, regional science, and finance are characterized by cross-sectional or “spatial” dependence. Standard techniques that fail to account for this dependence will result in inconsistently estimated standard errors. In this paper we present conditions under which a simple extension of common nonparametric covariance matrix estimation techniques yields standard error estimates that are robust to very general forms of spatial and temporal dependence as the time dimension becomes large. We illustrate the relevance of this approach using Monte Carlo simulations and a number of empirical examples.

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The study uses Driscoll and Kraay's (1998) method to examine the linear relationship between financialization and the labor share.
“Deviating from the previous empirical studies such as Dünhaupt (2017), I use Driscoll and Kraay's (1998) method to examine the linear relationship between financialization and the labor share of national”
From Financialization and the Labor Share of Income (2019) · cites this paper as Driscoll and Kraay's (1998)
Driscoll and Kraay (1998) provide a method that allows for arbitrary correlations within a cluster and correlation that decays in calendar time across nearby time periods regardless of unit.
“as in Driscoll and Kraay 1998”
From An Introductory Guide to Event Study Models (2023) · cites this paper as Driscoll and Kraay 1998

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Authors: Driscoll, J. C., & Kraay, A. C.
Affiliations: Brown University (US)
World Bank (US)
ORCID: Driscoll, John C.
Kraay, Aart C.
Venue: Review of Economics and Statistics
Publisher: MIT Press
Published: 1998-11
Volume: 80
Issue: 4
Pages: 549-560
ISSN: 0034-6535 (ISSN-L)
1530-9142
DOI: 10.1162/003465398557825
OpenAlex: W2022220920
Cited by: 6,865
References: 37
Citations by year: 2026: 1321 · 2025: 891 · 2024: 708 · 2023: 693 · 2022: 562 · 2021: 452 · 2020: 346 · 2019: 307 · 2018: 229 · 2017: 238 · 2016: 187 · 2015: 184 · 2014: 195 · 2013: 139 · 2012: 112
FWCI: 9.60
Type: journal article
Language: en
Open access: closed
Locations: The Review of Economics and Statistics (publishedVersion)
RePEc: Research Papers in Economics (submittedVersion)
Topics: Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Spatial and Panel Data Analysis
Physical Sciences › Mathematics › Statistics and Probability › Statistical Methods and Inference
Social Sciences › Economics, Econometrics and Finance › Finance › Financial Risk and Volatility Modeling
Keywords: spatial dependence, panel data, nonparametric kernel estimators, standard errors, time dependence

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Consistent Covariance Matrix Estimation with Spatially Dependent Panel Data

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