Testing Slope Homogeneity in Large Panels
This paper proposes a modi?ed version of Swamy’s test of slope homogeneity for panel data models where the cross section dimension (N) could be large relative to the time series dimension (T). The proposed test exploits the cross section dispersion of individual slopes weighted by their relative precision. In the case of models with strictly exogenous regressors and normally distributed errors, the test is shown to have a standard normal distribution as (N, T) j ? 8. Under non-normal errors and in the case of stationary dynamic models, the condition on the relative expansion rates of N and T for the test to be valid is given by vN/T ? 0, as (N, T) j ? 8. Using Monte Carlo experiments, it is shown that the test has the correct size and satisfactory power in panels with strictly exogenous regressors for various combinations of N and T. For autoregressive (AR) models the proposed test performs well for moderate values of the root of the autoregressive process. But for AR models with roots near unity a bias-corrected bootstrapped version of the test is proposed which performs well even if N is large relative to T. The proposed cross section dispersion tests are applied to testing the homogeneity of slopes in autoregressive models of individual earnings using the PSID data. The results show statistically signi?cant evidence of slope heterogeneity in the earnings dynamics, even when individuals with similar educational backgrounds are considered as sub-sets.
|Date of creation:||Jan 2005|
|Date of revision:|
|Contact details of provider:|| Phone: (213) 740-3521|
Fax: (213) 740-3522
Web page: http://www.usc.edu/dept/LAS/economics/IEPR/
More information through EDIRC
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.:
- Horowitz, Joel L., 1994. "Bootstrap-based critical values for the information matrix test," Journal of Econometrics, Elsevier, vol. 61(2), pages 395-411, April.
- Javier Alvarez & Manuel Arellano, 2003.
"The Time Series and Cross-Section Asymptotics of Dynamic Panel Data Estimators,"
Econometric Society, vol. 71(4), pages 1121-1159, 07.
- Alvarez, J. & Arellano, M., 1998. "The Time Series and Cross-Section Asymptotics of Dynamic Panel Data Estimators," Papers 9808, Centro de Estudios Monetarios Y Financieros-.
- Costas Meghir & Luigi Pistaferri, 2001.
"Income variance dynamics and heterogenity,"
IFS Working Papers
W01/07, Institute for Fiscal Studies.
- Lutz Kilian, 1998. "Confidence intervals for impulse responses under departures from normality," Econometric Reviews, Taylor & Francis Journals, vol. 17(1), pages 1-29.
- M. Hashem Pesaran, 2006.
"Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure,"
Econometric Society, vol. 74(4), pages 967-1012, 07.
- M. Hashem Pesaran, 2004. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," CESifo Working Paper Series 1331, CESifo Group Munich.
- Martin Browning & Mette Ejrnaes, 2006.
"Modelling income processes with lots of heterogeneity,"
Economics Series Working Papers
285, University of Oxford, Department of Economics.
- Martin Browning & Mette Ejrn�s & Javier Alvarez, 2010. "Modelling Income Processes with Lots of Heterogeneity," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1353-1381.
- Javier Alvarez & Martin Browning & Mette Ejrnæs, 2002. "Modelling income processes with lots of heterogeneity," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 D2-3, International Conferences on Panel Data.
- Javier Alvarez & Martin Browning & Mette Ejrnæs, 2001. "Modelling Income Processes with lots of heterogeneity," CAM Working Papers 2002-01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
- Magnus, J.R., 1978. "The moments of products of quadratic forms in normal variables," Other publications TiSEM 17c77a44-1789-4cf4-a382-a, School of Economics and Management.
- Ullah, Aman, 2004. "Finite Sample Econometrics," OUP Catalogue, Oxford University Press, edition 1, number 9780198774488, March.
- Hausman, Jerry A, 1978.
"Specification Tests in Econometrics,"
Econometric Society, vol. 46(6), pages 1251-71, November.
- Maurice J.G. Bun, 2004. "Testing poolability in a system of dynamic regressions with nonspherical disturbances," Empirical Economics, Springer, vol. 29(1), pages 89-106, January.
- Kiviet, Jan F. & Phillips, Garry D. A., 1994. "Bias assessment and reduction in linear error-correction models," Journal of Econometrics, Elsevier, vol. 63(1), pages 215-243, July.
- Cheng Hsiao & M. Hashem Pesaran, 2004.
"Random Coefficient Panel Data Models,"
CESifo Working Paper Series
1233, CESifo Group Munich.
- Hsiao, C. & Pesaran, M.H., 2004. "‘Random Coefficient Panel Data Models’," Cambridge Working Papers in Economics 0434, Faculty of Economics, University of Cambridge.
- Cheng Hsiao & M. Hashem Pesaran, 2004. "Random Coefficient Panel Data Models," IEPR Working Papers 04.2, Institute of Economic Policy Research (IEPR).
- Hsiao, Cheng & Pesaran, M. Hashem, 2004. "Random Coefficient Panel Data Models," IZA Discussion Papers 1236, Institute for the Study of Labor (IZA).
- Peter C. B. Phillips & Donggyu Sul, 2003. "Dynamic panel estimation and homogeneity testing under cross section dependence *," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 217-259, 06.
- M. Hashem Pesaran, 2007.
"A simple panel unit root test in the presence of cross-section dependence,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
- Pesaran, M.H., 2003. "A Simple Panel Unit Root Test in the Presence of Cross Section Dependence," Cambridge Working Papers in Economics 0346, Faculty of Economics, University of Cambridge.
- repec:cup:cbooks:9780521522717 is not listed on IDEAS
- Swamy, P A V B, 1970.
"Efficient Inference in a Random Coefficient Regression Model,"
Econometric Society, vol. 38(2), pages 311-23, March.
- Tom Doan, . "SWAMY: RATS procedure to compute a GLS matrix weighted estimator for a panel data set," Statistical Software Components RTS00206, Boston College Department of Economics.
- Holly, Alberto, 1982. "A Remark on Hausman's Specification Test," Econometrica, Econometric Society, vol. 50(3), pages 749-59, May.
- repec:ner:tilbur:urn:nbn:nl:ui:12-153208 is not listed on IDEAS
- Andrews, Donald W K, 1993. "Exactly Median-Unbiased Estimation of First Order Autoregressive/Unit Root Models," Econometrica, Econometric Society, vol. 61(1), pages 139-65, January.
- Jinyong Hahn & Guido Kuersteiner, 2002. "Asymptotically Unbiased Inference for a Dynamic Panel Model with Fixed Effects when Both "n" and "T" Are Large," Econometrica, Econometric Society, vol. 70(4), pages 1639-1657, July.
- Pesaran, H. & Smith, R. & Im, K.S., 1995. "Dynamic Linear Models for Heterogeneous Panels," Cambridge Working Papers in Economics 9503, Faculty of Economics, University of Cambridge.
- repec:ner:tilbur:urn:nbn:nl:ui:12-153205 is not listed on IDEAS
- repec:cup:cbooks:9780521818551 is not listed on IDEAS
When requesting a correction, please mention this item's handle: RePEc:scp:wpaper:05-14. 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: (Farideh Motamedi)
If references are entirely missing, you can add them using this form.