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An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Units
Abstract
Many economic researchers have attempted to measure the effect of aggregate market or public policy variables on micro units by merging aggregate data with micro observations by industry, occupation, or geographical location, then using multiple regression or similar statistical models to measure the effect of the aggregate variable on the micro units. The methods are usually based upon the assumption of independent disturbances, which is typically not appropriate for data from populations with grouped structure. Incorrectly using ordinary least squares can lead to standard errors that are seriously biased downward. This note illustrates the danger of spurious regression from this kind of misspecification, using as an example a wage regression estimated on data for individual workers that includes in the specification aggregate regressors for characteristics of geographical states. Copyright 1990 by MIT Press.
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Cites
Maximum Likelihood Approaches to Variance Component Estimation and to Related Problems
Harville, D. A. (1977) · Journal of the American Statistical Association · doi:10.1080/01621459.1977.10480998 · Cited by 2,667
A method of moments interpretation of sequential estimators
Newey, W. K. (1984) · Economics Letters · doi:10.1016/0165-1765(84)90083-1 · Cited by 331
Cited by
(2001) · RePEc: Research Papers in Economics · Cited by 27,577
How Much Should We Trust Differences-in-Differences Estimates?
Bertrand, M., Duflo, E., & Mullainathan, S. (2004) · The Quarterly Journal of Economics · doi:10.1162/003355304772839588 · Cited by 10,641
A Practitioner’s Guide to Cluster-Robust Inference
Colin Cameron, A., & Miller, D. L. (2015) · Journal of Human Resources · doi:10.3368/jhr.50.2.317 · Cited by 5,037
Recent Developments in the Econometrics of Program Evaluation
Imbens, G. W., & Wooldridge, J. M. (2009) · Journal of Economic Literature · doi:10.1257/jel.47.1.5 · Cited by 4,926
Bootstrap-Based Improvements for Inference With Clustered Errors
Cameron, A. C., Gelbach, J. B., & Miller, D. L. (2008) · Review of Economics and Statistics · doi:10.1162/rest.90.3.414 · Cited by 4,417
Metadata
- Authors
- Moulton, B. R.
- Venue
- The Review of Economics and Statistics
- Publisher
- JSTOR
- Published
- 1990-05
- Volume
- 72
- Issue
- 2
- Pages
- 334
- ISSN
- 0034-6535 (ISSN-L)
- OpenAlex
- W2009729418
- Cited by
- 2,630
- References
- 2
- FWCI
- 13.89
- Type
- journal article
- Language
- en
- Open access
- closed
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