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Testing for Individual Effects in Dynamic Models Using Panel Data

  • Douglas Holtz-Eakin
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    This note presents a simple, linear test for individual effects in dynamic models using panel data; building upon the techniques of Holtz-Eakin, Newey, and Rosen (HNR) [198S] for estimating vector autoregressions using panel data. While implementing estimators which are consistent in the presence of individual effects is straightforward, there is no guarantee that this form of heterogeneity is an -important feature of the data. Moreover, there are advantages to avoiding an individual v effects specification. Thus, it is useful to have a test for the existence of individual effects. The test focuses on sample moment conditions implied by the presence of individual effects and is particularly suited for dynamic models using panel data. The calculations follow directly from linear, instrumental variable techniques which are computationally straightforward. Moreover, the test statistics follows directly from the estimation of autoregressive models.

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    File URL: http://www.nber.org/papers/t0057.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0057.

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    Date of creation: Jun 1986
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    Publication status: published as Journal of Econometrics, vol. 39, pp. 297-307, 1988.
    Handle: RePEc:nbr:nberte:0057
    Note: PE
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.orgEmail:


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    1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
    2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
    3. J. A. Hausman & W. E. Taylor, 1980. "Panel Data and Unobservable Individual Effects," Working papers 255, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Joseph Altonji & Christina Paxson, 1985. "Job Characteristics and Hours of Work," Working Papers 578, Princeton University, Department of Economics, Industrial Relations Section..
    5. Douglas Holtz-Eakin & Whitney K. Newey & Harvey S. Rosen, 1989. "Implementing Causality Tests with Panel Data, with an Example from LocalPublic Finance," NBER Technical Working Papers 0048, National Bureau of Economic Research, Inc.
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