Network Cluster-Robust Inference

27.10.2021 14:15 – 15:45

INSTITUTE OF ECONOMICS AND ECONOMETRICS SEMINAR /

Abstract:

Since network data commonly consists of observations on a single large network, researchers often partition the network into clusters in order to apply cluster-robust inference methods. All existing such methods require clusters to be asymptotically independent. We prove under mild conditions that, in order for this requirement to hold for network-dependent data, it is necessary and sufficient for clusters to have low conductance, the ratio of edge boundary size to volume. This yields a simple measure of cluster quality. We find in simulations that, when clusters have low conductance, cluster-robust methods outperform HAC estimators in terms of size control. However, for important classes of networks lacking low-conductance clusters, the methods can exhibit substantial size distortion. To assess the existence of low-conductance clusters and construct them, we draw on results in spectral graph theory that connect conductance to the spectrum of the graph Laplacian. Based on these results, we propose to use the spectrum to determine the number of low-conductance clusters and spectral clustering to construct them.

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