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We can apply the BDM findings and Hansen (2007a) results directly to this equation. Namely, if we estimate (8) by OLS – which means full year and group effects, along with xgt – then the OLS estimator has satisfying properties as G and T both increase, provided vgt : t 1, 2, . . . , Tis a weakly dependent time series for all g. The simulations in BDM and Hansen (2007a) indicate that cluster-robust inference, where each cluster is a set of time periods, work reasonably well when

  • vgtfollows a stable AR(1) model and G is

moderately large. Hansen (2007b), noting that the OLS estimator (the fixed effects estimator) applied to (8) is inefficient when vgt is serially uncorrelated, proposes feasible GLS. When T is small, estimating

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