Thirty years of heteroskedasticity-robust inference

Abstract

White (Econometrica, 48:817–838, 1980) marked the beginning of a new era for inference in econometrics. It introduced the revolutionary idea of inferencethat is robust to heteroskedasticity of unknown form, an idea that was very soonextended to other forms of robust inference and also led to many new estimationmethods. This paper discusses the development of heteroskedasticity-robust inferencesince 1980. There have been two principal lines of investigation. One approachhas been to modify White’s original estimator to improve its finite-sample properties, and the other has been to use bootstrap methods. The relation between thesetwo approaches, and some ways in which they may be combined, are discussed. Finally, a simulation experiment compares various methods and shows how farheteroskedasticity-robust inference has come in just over 30 years.