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Diagnostic Tests of Cross Section Independence for Nonlinear Panel Data Models

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Author Info

  • Hsiao, Cheng

    ()
    (University of Southern California)

  • Pesaran, M. Hashem

    ()
    (University of Cambridge)

  • Pick, Andreas

    ()
    (University of Cambridge)

Abstract

In this paper we discuss tests for residual cross section dependence in nonlinear panel data models. The tests are based on average pair-wise residual correlation coefficients. In nonlinear models, the definition of the residual is ambiguous and we consider two approaches: deviations of the observed dependent variable from its expected value and generalized residuals. We show the asymptotic consistency of the cross section dependence (CD) test of Pesaran (2004). In Monte Carlo experiments it emerges that the CD test has the correct size for any combination of N and T whereas the LM test relies on T large relative to N. We then analyze the roll-call votes of the 104th U.S. Congress and find considerable dependence between the votes of the members of Congress.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2756.

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Length: 21 pages
Date of creation: Apr 2007
Date of revision:
Handle: RePEc:iza:izadps:dp2756

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Keywords: cross-section dependence; nonlinear panel data model;

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References

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  1. Ullah, Aman, 2004. "Finite Sample Econometrics," OUP Catalogue, Oxford University Press, edition 1, number 9780198774488.
  2. Frees, Edward W., 1995. "Assessing cross-sectional correlation in panel data," Journal of Econometrics, Elsevier, vol. 69(2), pages 393-414, October.
  3. Pesaran, M.H. & Ullah, A. & Yamagata. T., 2006. "A Bias-Adjusted LM Test of Error Cross Section Independence," Cambridge Working Papers in Economics 0641, Faculty of Economics, University of Cambridge.
  4. Gourieroux, C. & Monfort, A. & Trognon, A., 1985. "A General Approach to Serial Correlation," Econometric Theory, Cambridge University Press, vol. 1(03), pages 315-340, December.
  5. Chesher, Andrew & Irish, Margaret, 1987. "Residual analysis in the grouped and censored normal linear model," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 33-61.
  6. Gourieroux, Christian & Monfort, Alain & Renault, Eric & Trognon, Alain, 1987. "Generalised residuals," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 5-32.
  7. Lee, Lung-Fei, 2002. "Consistency And Efficiency Of Least Squares Estimation For Mixed Regressive, Spatial Autoregressive Models," Econometric Theory, Cambridge University Press, vol. 18(02), pages 252-277, April.
  8. H. Kelejian, Harry & Prucha, Ingmar R., 2001. "On the asymptotic distribution of the Moran I test statistic with applications," Journal of Econometrics, Elsevier, vol. 104(2), pages 219-257, September.
  9. M. Hashem Pesaran, 2004. "General Diagnostic Tests for Cross Section Dependence in Panels," CESifo Working Paper Series 1229, CESifo Group Munich.
  10. repec:wop:humbsf:2000-20 is not listed on IDEAS
  11. Ng, Serena, 2006. "Testing Cross-Section Correlation in Panel Data Using Spacings," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 12-23, January.
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Cited by:
  1. Martí Ballester, Carmen Pilar, 2013. "Determinants of equity pension plan flows," Economics Discussion Papers 2013-15, Kiel Institute for the World Economy.
  2. Vasilis Sarafidis & Tom Wansbeek, 2012. "Cross-Sectional Dependence in Panel Data Analysis," Econometric Reviews, Taylor & Francis Journals, vol. 31(5), pages 483-531, September.

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