Testing slope homogeneity in large panels
This paper proposes a modi?ed version of Swamy’s test of slope homogeneity for panel data models where the cross section dimension (N) could be large relative to the time series dimension (T). The proposed test exploits the cross section dispersion of individual slopes weighted by their relative precision. In the case of models with strictly exogenous regressors and normally distributed errors, the test is shown to have a standard normal distribution as (N, T) j ? 8. Under non-normal errors and in the case of stationary dynamic models, the condition on the relative expansion rates of N and T for the test to be valid is given by vN/T ? 0, as (N, T) j ? 8. Using Monte Carlo experiments, it is shown that the test has the correct size and satisfactory power in panels with strictly exogenous regressors for various combinations of N and T. For autoregressive (AR) models the proposed test performs well for moderate values of the root of the autoregressive process. But for AR models with roots near unity a bias-corrected bootstrapped version of the test is proposed which performs well even if N is large relative to T. The proposed cross section dispersion tests are applied to testing the homogeneity of slopes in autoregressive models of individual earnings using the PSID data. The results show statistically signi?cant evidence of slope heterogeneity in the earnings dynamics, even when individuals with similar educational backgrounds are considered as sub-sets.
(This abstract was borrowed from another version of this item.)
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Martin Browning & Mette Ejrnaes, 2006.
"Modelling income processes with lots of heterogeneity,"
Economics Series Working Papers
285, University of Oxford, Department of Economics.
- Martin Browning & Mette Ejrnæs & Javier Alvarez, 2010. "Modelling Income Processes with Lots of Heterogeneity," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1353-1381.
- Javier Alvarez & Martin Browning & Mette Ejrnæs, 2002. "Modelling income processes with lots of heterogeneity," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 D2-3, International Conferences on Panel Data.
- Javier Alvarez & Martin Browning & Mette Ejrnæs, 2001. "Modelling Income Processes with lots of heterogeneity," CAM Working Papers 2002-01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
- Ullah, Aman, 2004. "Finite Sample Econometrics," OUP Catalogue, Oxford University Press, edition 1, number 9780198774488, December.
- Cheng Hsiao & M. Hashem Pesaran, 2004.
"Random Coefficient Panel Data Models,"
IEPR Working Papers
04.2, Institute of Economic Policy Research (IEPR).
- Cheng Hsiao & M. Hashem Pesaran, 2004. "Random Coefficient Panel Data Models," CESifo Working Paper Series 1233, CESifo Group Munich.
- Hsiao, C. & Pesaran, M.H., 2004. "‘Random Coefficient Panel Data Models’," Cambridge Working Papers in Economics 0434, Faculty of Economics, University of Cambridge.
- Hsiao, Cheng & Pesaran, M. Hashem, 2004. "Random Coefficient Panel Data Models," IZA Discussion Papers 1236, Institute for the Study of Labor (IZA).
- M. Hashem Pesaran, 2004.
"Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure,"
CESifo Working Paper Series
1331, CESifo Group Munich.
- M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, 07.
- Pesaran, H. & Smith, R. & Im, K.S., 1995. "Dynamic Linear Models for Heterogeneous Panels," Cambridge Working Papers in Economics 9503, Faculty of Economics, University of Cambridge.
- Costas Meghir & Luigi Pistaferri, 2004.
"Income Variance Dynamics and Heterogeneity,"
Econometric Society, vol. 72(1), pages 1-32, 01.
- Alvarez, J. & Arellano, M., 1998.
"The Time Series and Cross-Section Asymptotics of Dynamic Panel Data Estimators,"
9808, Centro de Estudios Monetarios Y Financieros-.
- Javier Alvarez & Manuel Arellano, 2003. "The Time Series and Cross-Section Asymptotics of Dynamic Panel Data Estimators," Econometrica, Econometric Society, vol. 71(4), pages 1121-1159, 07.
- Jinyong Hahn & Guido Kuersteiner, 2002. "Asymptotically Unbiased Inference for a Dynamic Panel Model with Fixed Effects when Both "n" and "T" Are Large," Econometrica, Econometric Society, vol. 70(4), pages 1639-1657, July.
- J. A. Hausman, 1976.
"Specification Tests in Econometrics,"
185, Massachusetts Institute of Technology (MIT), Department of Economics.
- Horowitz, Joel L., 1994. "Bootstrap-based critical values for the information matrix test," Journal of Econometrics, Elsevier, vol. 61(2), pages 395-411, April.
- Andrews, Donald W K, 1993. "Exactly Median-Unbiased Estimation of First Order Autoregressive/Unit Root Models," Econometrica, Econometric Society, vol. 61(1), pages 139-65, January.
- Holly, Alberto, 1982. "A Remark on Hausman's Specification Test," Econometrica, Econometric Society, vol. 50(3), pages 749-59, May.
- Magnus, J.R., 1978. "The moments of products of quadratic forms in normal variables," Other publications TiSEM 17c77a44-1789-4cf4-a382-a, Tilburg University, School of Economics and Management.
- Peter C. B. Phillips & Donggyu Sul, 2003. "Dynamic panel estimation and homogeneity testing under cross section dependence *," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 217-259, 06.
- Kiviet, Jan F. & Phillips, Garry D. A., 1994. "Bias assessment and reduction in linear error-correction models," Journal of Econometrics, Elsevier, vol. 63(1), pages 215-243, July.
- M. Hashem Pesaran, 2007.
"A simple panel unit root test in the presence of cross-section dependence,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
- Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge.
- Swamy, P A V B, 1970.
"Efficient Inference in a Random Coefficient Regression Model,"
Econometric Society, vol. 38(2), pages 311-23, March.
- Tom Doan, . "SWAMY: RATS procedure to compute a GLS matrix weighted estimator for a panel data set," Statistical Software Components RTS00206, Boston College Department of Economics.
- Maurice J.G. Bun, 2004. "Testing poolability in a system of dynamic regressions with nonspherical disturbances," Empirical Economics, Springer, vol. 29(1), pages 89-106, January.
- Lutz Kilian, 1998. "Confidence intervals for impulse responses under departures from normality," Econometric Reviews, Taylor & Francis Journals, vol. 17(1), pages 1-29.
When requesting a correction, please mention this item's handle: RePEc:eee:econom:v:142:y:2008:i:1:p:50-93. 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: (Shamier, Wendy)
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.