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XTFACTORTEST: Stata module to compute specification tests for heterogeneous panel data models with interactive (multifactor) error effects

Author

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  • Merwan Roudane

Programming Language

Abstract

xtfactortest is a Stata library implementing a coherent battery of specification tests for heterogeneous panel data models. Such Interactive-Effects (IE) panels nest both the standard two-way fixed effects (2W-FE) model and the Common Correlated Effects (CCE) framework of Pesaran (2006). Whether or not a researcher needs CCE / PC depends on two concurrent issues: (a) whether the slopes beta_i are heterogeneous and, if so, whether that heterogeneity is correlated with VARIANCE features of the regressors (Campello, Galvao & Juhl 2019); (b) whether the regressors are correlated with the unobserved factor loadings gamma_i (Bai 2009; Kapetanios, Serlenga & Shin 2023, 2024). xtfactortest answers each question with a dedicated test plus a joint test, and provides an explicit decision rule based on the five-lessons review of Juodis & Reese (2026).

Suggested Citation

  • Merwan Roudane, 2026. "XTFACTORTEST: Stata module to compute specification tests for heterogeneous panel data models with interactive (multifactor) error effects," Statistical Software Components S459707, Boston College Department of Economics.
    • Handle: RePEc:boc:bocode:s459707
    Note: This module should be installed from within Stata by typing "ssc install xtfactortest". The module is made available under terms of the GPL v3 (https://www.gnu.org/licenses/gpl-3.0.txt). Windows users should not attempt to download these files with a web browser.
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    File URL: http://fmwww.bc.edu/repec/bocode/x/xtfactortest.ado
    File Function: program code
    Download Restriction: no
    File URL: http://fmwww.bc.edu/repec/bocode/x/xtfactortest.sthlp
    File Function: help file
    Download Restriction: no
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