I was wondering if, when running a regression on panel data, clustered standard errors are already correcting for heteroskedasticity. Actually, I have run such a regression and detected heteroskedasticity. Since I used the pooled OLS model I have to cluster the standard errors anyway. Hence, I was hoping that I can address both issues simultaneously. Is that right?
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2$\begingroup$ I think so, yes, but you might want to provide more detail on how you're handling the clustering. $\endgroup$ – Jeremy Miles May 28 '14 at 18:25
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Answering you question: Cluster Robust is also Heteroskedastic Consistent.
I would recommend that you read the A Practitioner's Guide to Cluster-Robust Inference which is a nice piece from Colin Cameron on several aspects of clustered/heteroskedastic robust errors.
Page 20 onward should help you out.
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$\begingroup$ However, what happens if I correct for heteroscedasticity by means of clustered standard errors, even though there is prove that the initial results are homoscedastic. Is that a severe problem? $\endgroup$ – Phil May 29 '14 at 11:03
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$\begingroup$ If the errors are homoscedastic, Heteroskedastic consistent errors are biased. Jusha Angrist and Jorn Pischke have a nice discussion around that topic in the book Mostly Harmless Econometrics (Chapter 8) $\endgroup$ – mmgm Jun 24 '14 at 13:28
