vcovPC {sandwich} | R Documentation

## Panel-Corrected Covariance Matrix Estimation

### Description

Estimation of sandwich covariances a la Beck and Katz (1995) for panel data.

### Usage

    vcovPC(x, cluster = NULL, order.by = NULL,
      pairwise = FALSE, sandwich = TRUE, fix = FALSE, ...)

    meatPC(x, cluster = NULL, order.by = NULL,
      pairwise = FALSE, kronecker = TRUE, ...)

### Arguments

`x` | a fitted model object.
`cluster` | a variable indicating the clustering of observations, a `list` (or `data.frame`) thereof, or a formula specifying which variables from the fitted model should be used (see examples). By default (`cluster = NULL`), either `attr(x, "cluster")` is used (if any) or otherwise every observation is assumed to be its own cluster.
`order.by` | a variable, list/data.frame, or formula indicating the aggregation within time periods. By default `attr(x, "order.by")` is used (if any) or otherwise observations within clusters are assumed to be ordered.
`pairwise` | logical. For unbalanced panels. Indicating whether the meat should be estimated pair- or casewise.
`sandwich` | logical. Should the sandwich estimator be computed? If set to `FALSE` only the meat matrix is returned.
`fix` | logical. Should the covariance matrix be fixed to be positive semi-definite in case it is not?
`kronecker` | logical. Calculate the meat via the Kronecker-product, shortening the computation time for small matrices. For large matrices, set `kronecker = FALSE`.
`...` | arguments passed to the `meatPC` or `estfun` function, respectively.

### Details

`vcovPC` is a function for estimating Beck and Katz (1995) panel-corrected covariance matrix.

The function `meatPC` is the work horse for estimating the meat of Beck and Katz (1995) covariance matrix estimators. `vcovPC` is a wrapper calling `sandwich` and `bread` (Zeileis 2006).

Following Bailey and Katz (2011), there are two alternatives to estimate the meat for unbalanced panels. For `pairwise = FALSE`, a balanced subset of the panel is used, whereas for `pairwise = TRUE`, a pairwise balanced sample is employed.

The `cluster`/`order.by` specification can be made in a number of ways: Either both can be a single variable or `cluster` can be a `list`/`data.frame` of two variables. If `expand.model.frame` works for the model object `x`, the `cluster` (and potentially additionally `order.by`) can also be a `formula`. By default (`cluster = NULL, order.by = NULL`), `attr(x, "cluster")` and `attr(x, "order.by")` are checked and used if available. If not, every observation is assumed to be its own cluster, and observations within clusters are assumed to be ordered accordingly. If the number of observations in the model `x` is smaller than in the original `data` due to `NA` processing, then the same `NA` processing can be applied to `cluster` if necessary (and `x$na.action` being available).

### Value

A matrix containing the covariance matrix estimate.

### References

Bailey D, Katz JN (2011). “Implementing Panel-Corrected Standard Errors in R: The pcse Package”, Journal of Statistical Software, Code Snippets, 42(1), 1–11. http://www.jstatsoft.org/v42/c01/

Beck N, Katz JN (1995). “What To Do (and Not To Do) with Time-Series-Cross-Section Data in Comparative Politics”, American Political Science Review, 89(3), 634–647. http://www.jstor.org/stable/2082979

Berger S, Graham N, Zeileis A (2017). “Various Versatile Variances: An Object-Oriented Implementation of Clustered Covariances in R.” Technical Report 2017-12, Working Papers in Economics and Statistics, Research Platform Empirical and Experimental Economics, Universitaet Innsbruck. http://EconPapers.RePEc.org/RePEc:inn:wpaper:2017-12.

Zeileis A (2004). “Econometric Computing with HC and HAC Covariance Matrix Estimator”, Journal of Statistical Software, 11(10), 1–17. doi: 10.18637/jss.v011.i10

Zeileis A (2006). “Object-Oriented Computation of Sandwich Estimators”, Journal of Statistical Software, 16(9), 1–16. doi: 10.18637/jss.v016.i09

### See Also

`vcovCL`, `vcovPL`

### Examples

    ## Petersen's data
    data("PetersenCL", package = "sandwich")
    m <- lm(y ~ x, data = PetersenCL)

    ## Beck and Katz (1995) standard errors
    ## balanced panel
    sqrt(diag(vcovPC(m, cluster = ~ firm + year)))

    ## unbalanced panel
    PU <- subset(PetersenCL, !(firm == 1 & year == 10))
    pu_lm <- lm(y ~ x, data = PU)
    sqrt(diag(vcovPC(pu_lm, cluster = ~ firm + year, pairwise = TRUE)))
    sqrt(diag(vcovPC(pu_lm, cluster = ~ firm + year, pairwise = FALSE)))

    ## the following specifications of cluster/order.by are equivalent
    vcovPC(m, cluster = ~ firm + year)
    vcovPC(m, cluster = PetersenCL[, c("firm", "year")])
    vcovPC(m, cluster = ~ firm, order.by = ~ year)
    vcovPC(m, cluster = PetersenCL$firm, order.by = PetersenCL$year)

    ## these are also the same when observations within each
    ## cluster are already ordered
    vcovPC(m, cluster = ~ firm)
    vcovPC(m, cluster = PetersenCL$firm)

[Package sandwich version 2.5-1 Index]