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Testing for Heteroskedasticity and Serial Correlation in a Random Effects Panel Data Model

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Author Info
Badi H. Baltagi () (Center for Policy Research, Maxwell School, Syracuse University, Syracuse, NY 13244-1020)
Byoung Cheol Jung
Seuck Heun Song

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Abstract

This paper considers a panel data regression model with heteroskedastic as well as serially correlated disturbances, and derives a joint LM test for homoskedasticity and no first order serial correlation. The restricted model is the standard random individual error component model. It also derives a conditional LM test for homoskedasticity given serial correlation, as well as a conditional LM test for no first order serial correlation given heteroskedasticity, all in the context of a random effects panel data model. Monte Carlo results show that these tests, along with their likelihood ratio alternatives, have good size and power under various forms of heteroskedasticity including exponential and quadratic functional forms.

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File URL: http://www-cpr.maxwell.syr.edu/cprwps/pdf/wp111.pdf
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Publisher Info
Paper provided by Center for Policy Research, Maxwell School, Syracuse University in its series Center for Policy Research Working Papers with number 111.

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Length: 53 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:max:cprwps:111

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Related research
Keywords: Panel data; heteroskedasticity; serial correlation; Lagrange Multiplier tests; likelihood ratio; random effects;

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Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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References listed on IDEAS
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  1. Bera, Anil K. & Sosa-Escudero, Walter & Yoon, Mann, 2001. "Tests for the error component model in the presence of local misspecification," Journal of Econometrics, Elsevier, vol. 101(1), pages 1-23, March. [Downloadable!] (restricted)
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  2. Li, Qi & Stengos, Thanasis, 1994. "Adaptive Estimation in the Panel Data Error Component Model with Heteroskedasticity of Unknown Form," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 981-1000, November. [Downloadable!] (restricted)
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  3. Breusch, T S & Pagan, A R, 1980. "The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics," Review of Economic Studies, Blackwell Publishing, vol. 47(1), pages 239-53, January. [Downloadable!] (restricted)
  4. Lillard, Lee A & Willis, Robert J, 1978. "Dynamic Aspects of Earning Mobility," Econometrica, Econometric Society, vol. 46(5), pages 985-1012, September. [Downloadable!] (restricted)
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  5. Magnus, Jan R., 1982. "Multivariate error components analysis of linear and nonlinear regression models by maximum likelihood," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 239-285, August. [Downloadable!] (restricted)
  6. B. Baltagi & G. Bresson & A. Pirotte, 2004. "Joint LM test for homoskedasticity in a one-way error component model," Working Papers ERMES 0408, ERMES, University Paris 2. [Downloadable!]
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  7. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-94, September. [Downloadable!] (restricted)
  8. Galbraith, John W. & Zinde-Walsh, Victoria, 1995. "Transforming the error-components model for estimation with general ARMA disturbances," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 349-355. [Downloadable!] (restricted)
  9. Alberto HOLLY & Lucien GARDIOL, 1999. "A Score Test for Individual Heteroscedasticity in a One-way Error Components Model," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9915, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
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