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Testing for heteroskedasticity and serial correlation in a random effects panel data model

Listed author(s):
  • Baltagi, Badi H.
  • Jung, Byoung Cheol
  • Song, Seuck Heun

This paper considers a panel data regression model with heteroskedastic as well as serially correlated disturbances, and derives a joint LMÂ 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.sciencedirect.com/science/article/pii/S0304-4076(09)00164-X
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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 154 (2010)
Issue (Month): 2 (February)
Pages: 122-124

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Handle: RePEc:eee:econom:v:154:y:2010:i:2:p:122-124
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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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.
  2. Baltagi, Badi H & Griffin, James M, 1988. "A Generalized Error Component Model with Heteroscedastic Disturbances," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(4), pages 745-753, November.
  3. Nilanjana Roy, 2002. "Is Adaptive Estimation Useful For Panel Models With Heteroskedasticity In The Individual Specific Error Component? Some Monte Carlo Evidence," Econometric Reviews, Taylor & Francis Journals, vol. 21(2), pages 189-203.
  4. Badi H. Baltagi & Georges Bresson & Alain Pirotte, 2005. "Joint LM Test for Homoskedasticity in a One-Way error Component Model," Center for Policy Research Working Papers 72, Center for Policy Research, Maxwell School, Syracuse University.
  5. 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.
  6. LEJEUNE, Bernard, 1996. "A Full Heteroscedastic One-Way Error Components Model for Incomplete Panel : Maximum Likelihood Estimation and Lagrange Multiplier Testing," CORE Discussion Papers 1996006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. 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.
  8. Breusch, T.S. & Pagan, A.R., "undated". "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).
  9. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-1294, September.
  10. 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.
  11. Yongmiao Hong & Chihwa Kao, 2000. "Wavelet-Based Testing for Serial Correlation of Unknown Form in Panel Models," Center for Policy Research Working Papers 32, Center for Policy Research, Maxwell School, Syracuse University.
  12. Baltagi, Badi H. & Li, Qi, 1995. "Testing AR(1) against MA(1) disturbances in an error component model," Journal of Econometrics, Elsevier, vol. 68(1), pages 133-151, July.
  13. Baltagi, Badi H. & Jung, Byoung Cheol & Song, Seuck Heun, 2010. "Testing for heteroskedasticity and serial correlation in a random effects panel data model," Journal of Econometrics, Elsevier, vol. 154(2), pages 122-124, February.
  14. Lillard, Lee A & Willis, Robert J, 1978. "Dynamic Aspects of Earning Mobility," Econometrica, Econometric Society, vol. 46(5), pages 985-1012, September.
  15. Stengos, T. & Li, Q., 1993. "Adaptive Estimation in the Panel Data Error Component Model with Heteroskedasticity of Unknown Form," Working Papers 1993-4, University of Guelph, Department of Economics and Finance.
  16. Magnus, J.R., 1982. "Multivariate error components analysis of linear and nonlinear regression models by maximum likelihood," Other publications TiSEM 9ffb33fe-f5af-470f-b405-f, Tilburg University, School of Economics and Management.
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