Newey-west regression

1. What is Newey-West method?
2. What does Newey-West test do?
3. Why Newey-West standard errors?
4. Does Newey-West change coefficients?

What is Newey-West method?

A Newey–West estimator is used in statistics and econometrics to provide an estimate of the covariance matrix of the parameters of a regression-type model where the standard assumptions of regression analysis do not apply. It was devised by Whitney K. Newey and Kenneth D.

What does Newey-West test do?

The Newey–West (1987) variance estimator is an extension that produces consistent estimates when there is autocorrelation in addition to possible heteroskedasticity. The Newey–West variance estimator handles autocorrelation up to and including a lag of m, where m is specified by stipulating the lag() option.

Why Newey-West standard errors?

Newey-West standard error method is a robust method/estimator which is very accurate when there is presence of heteroskedasticity and autocorrelation. Also, when in the panel model there is a lagged value of an indicator then this method is very consistent.

Does Newey-West change coefficients?

Newey-West estimators adjust how the standard errors of the regression coefficients are calculated, but not the standard error of the model (eg. square root of the mean square error).