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A simple wavelet-based test for serial correlation in panel data models

  • Li, Yushu

    ()

    (Dept. of Business and Management Science, Norwegian School of Economics)

  • Andersson, Fredrik N. G.

    ()

    (Dept. of Economics, School of Economics and Management, Lund University)

Hong and Kao (2004) proposed a panel data test for serial correlation of unknown form. However, their test is computationally difficult to implement, and simulation studies show the test to have bad small-sample properties. We extend Gencay’s (2011) time series test for serial correlation to the panel data case in the framework proposed by Hong and Kao (2004). Our new test maintains the advantages of the Hong and Kao (2004) test, and it is simpler and easier to implement. Furthermore, simulation results show that our test has quicker convergence and hence better small-sample properties.

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File URL: http://hdl.handle.net/11250/194976
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Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2014/11.

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Length: 12 pages
Date of creation: 25 Mar 2014
Date of revision:
Handle: RePEc:hhs:nhhfms:2014_011
Contact details of provider: Postal: NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
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  1. Hong, Yongmiao, 1996. "Consistent Testing for Serial Correlation of Unknown Form," Econometrica, Econometric Society, vol. 64(4), pages 837-64, July.
  2. 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.
  3. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  4. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
  5. 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.
  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, 1995. "Testing AR(1) against MA(1) disturbances in an error component model," Journal of Econometrics, Elsevier, vol. 68(1), pages 133-151, July.
  8. Bhargava, A & Franzini, L & Narendranathan, W, 1982. "Serial Correlation and the Fixed Effects Model," Review of Economic Studies, Wiley Blackwell, vol. 49(4), pages 533-49, October.
  9. Lee, Jin & Hong, Yongmiao, 2001. "Testing For Serial Correlation Of Unknown Form Using Wavelet Methods," Econometric Theory, Cambridge University Press, vol. 17(02), pages 386-423, April.
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