Advanced Search
MyIDEAS: Login to save this paper or follow this series

A Bias-Adjusted LM Test of Error Cross Section Independence

Contents:

Author Info

  • Pesaran, M.H.
  • Ullah, A.
  • Yamagata. T.

Abstract

This paper proposes bias-adjusted normal approximation versions of Lagrange multiplier (NLM) test of error cross section independence of Breusch and Pagan (1980) in the case of panel models with strictly exogenous regressors and normal errors. The exact mean and variance of the Lagrange multiplier (LM) test statistic are provided for the purpose of the bias-adjustments, and it is shown that the proposed tests have a standard normal distribution for the fixed time series dimension (T) as the cross section dimension (N) tends to infinity. Importantly, the proposed bias-adjusted NLM tests are consistent even when the Pesaran’s (2004) CD test is inconsistent. The finite sample evidence shows that the bias adjusted NLM tests successfully control the size, maintaining satisfactory power. However, it is also shown that the bias-adjusted NLM tests are not as robust as the CD test to non-normal errors and/or in the presence of weakly exogenous regressors.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe0641.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0641.

as in new window
Length: 22
Date of creation: May 2006
Date of revision:
Handle: RePEc:cam:camdae:0641

Note: Ec
Contact details of provider:
Web page: http://www.econ.cam.ac.uk/index.htm

Related research

Keywords: Cross Section Dependence; Spatial Dependence; LM test; Panel Model; Bias-adjusted Test;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Ullah, Aman, 2004. "Finite Sample Econometrics," OUP Catalogue, Oxford University Press, Oxford University Press, edition 1, number 9780198774488, October.
  2. Frees, Edward W., 1995. "Assessing cross-sectional correlation in panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 69(2), pages 393-414, October.
  3. Pesaran, M.H., 2004. "‘General Diagnostic Tests for Cross Section Dependence in Panels’," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0435, Faculty of Economics, University of Cambridge.
  4. Breusch, T.S. & Pagan, A.R., . "The Lagrange multiplier test and its applications to model specification in econometrics," CORE Discussion Papers RP -412, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cam:camdae:0641. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Howard Cobb).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.