Using Multiple Outcomes to Adjust Standard Errors for Spatial Correlation
Estimates auxiliary outcomes to correct regression standard errors for spatial correlation.
Abstract
A researcher interested in a particular outcome variable often observes dozens of other outcomes for the same units. If these auxiliary outcomes exhibit the same cross-sectional correlation as the outcome of interest, they can be used to estimate that correlation directly. We develop a procedure that uses estimates of this form to adjust standard errors in a given regression problem. We show, theoretically and with simulations, that the resulting standard errors can be substantially more accurate. Re-analyzing nine papers, we find that the proposed correction can make a meaningful difference in practice.