Detecting neglected parameter heterogeneity with Chow tests
AbstractThe paper demonstrates through a number of Monte Carlo experiments that, for the type of cross-section data sets typically encountered in applied economics, Chow tests on sorted variations of the data matrix can detect neglected parameter heterogeneity. The paper focuses on heterogeneity in the behavioural responses of economic actors that belong to different economically meaningful groups, such as the young, middle-aged, and old. Since the suggested methodology is easy to implement yet powerful, its routine use by applied economists would be desirable given the very significant estimation bias that can result from neglecting parameter heterogeneity.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Economics Letters.
Volume (Year): 13 (2006)
Issue (Month): 6 ()
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Other versions of this item:
- Joachim Zietz, 2005. "Detecting Neglected Parameter Heterogeneity with Chow Tests," Working Papers 200503, Middle Tennessee State University, Department of Economics and Finance.
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
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