IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Tests for the Error Component Model in the Presence of Local Misspecification

  • Anil K. Bera

    (University of Illinois)

  • Walter Sosa Escudero

    (National University of La Plata)

  • Mann Yoon

    (California State University at Los Angeles)

It is well known that most of the standard speci¯cation tests are not valid when the alternative hypothesis is misspeci¯ed. This is particularly true in the error component model, when one tests for either random e®ects or serial correlation without taking account of the presence of the other e®ect. In this paper we study the size and power of the standard Rao's score tests analytically and by simulation when the data is contaminated by local misspeci¯cation. These tests are adversely a®ected under misspeci¯cation. We suggest simple procedures to test for random e®ects (or serial correlation) in the presence of local serial correlation (or random e®ects), and these tests require ordinary least squares residuals only. Our Monte Carlo results demonstrate that the suggested tests have good ¯nite sample properties for local misspeci¯cation, and in some cases even for far distant misspeci¯cation. Our tests are also capable of detecting the right direction of the departure from the null hypothesis. We also provide some empirical illustrations to highlight the usefulness of our tests.

(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.

File URL: http://fmwww.bc.edu/RePEc/es2000/1888.pdf
File Function: main text
Download Restriction: no

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1888.

as
in new window

Length:
Date of creation: 01 Aug 2000
Date of revision:
Handle: RePEc:ecm:wc2000:1888
Contact details of provider: Phone: 1 212 998 3820
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
Email:


More information through EDIRC

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.:

as in new window
  1. Lillard, Lee A & Willis, Robert J, 1978. "Dynamic Aspects of Earning Mobility," Econometrica, Econometric Society, vol. 46(5), pages 985-1012, September.
  2. Baltagi, Badi H. & Chang, Young-Jae & Li, Qi, 1992. "Monte Carlo results on several new and existing tests for the error component model," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 95-120.
  3. Russell Davidson & James G. MacKinnon, 1984. "Implicit Alternatives and the Local Power of Test Statistics," Working Papers 556, Queen's University, Department of Economics.
  4. Hillier, Grant H., 1991. "On multiple diagnostic procedures for the linear model," Journal of Econometrics, Elsevier, vol. 47(1), pages 47-66, January.
  5. Saikkonen, Pentti, 1989. "Asymptotic relative efficiency of the classical test statistics under misspecification," Journal of Econometrics, Elsevier, vol. 42(3), pages 351-369, November.
  6. Breusch, T S & Pagan, A R, 1980. "The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 239-53, January.
  7. Baltagi, Badi H. & Li, Qi, 1991. "A joint test for serial correlation and random individual effects," Statistics & Probability Letters, Elsevier, vol. 11(3), pages 277-280, March.
  8. 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.
  9. Nerlove, Marc, 1971. "Further Evidence on the Estimation of Dynamic Economic Relations from a Time Series of Cross Sections," Econometrica, Econometric Society, vol. 39(2), pages 359-82, March.
  10. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
  11. Bera, Anil K. & Jarque, Carlos M., 1982. "Model specification tests : A simultaneous approach," Journal of Econometrics, Elsevier, vol. 20(1), pages 59-82, October.
  12. Bera, Anil K. & Yoon, Mann J., 1993. "Specification Testing with Locally Misspecified Alternatives," Econometric Theory, Cambridge University Press, vol. 9(04), pages 649-658, August.
  13. Honda, Yuzo, 1985. "Testing the Error Components Model with Non-normal Disturbances," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 681-90, October.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ecm:wc2000:1888. 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: (Christopher F. Baum)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.