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Breusch and Pagan’s (1980) Test Revisited

Author

Listed:
  • Jinyong Hahn

    (Department of Economics, UCLA)

  • Ruoyao Shi

    (Department of Economics, University of California Riverside)

Abstract

We consider the local asymptotic power of Breusch and Pagan’s (1980) test for the general nonlinear models. The test is motivated by the random effects, but we consider the fixed effects for the alternative hypothesis, derive the local power, and show that the test has a power to detect the fixed effects. We also examine how the estimation noise of the maximum likelihood estimator changes the asymptotic distribution of the test under the null, and show that such a noise may be ignored in a large n large T situation, which may have a convenient implication in the possible application of the test to network models.

Suggested Citation

  • Jinyong Hahn & Ruoyao Shi, 2021. "Breusch and Pagan’s (1980) Test Revisited," Working Papers 202110, University of California at Riverside, Department of Economics.
    • Handle: RePEc:ucr:wpaper:202110
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    File URL: https://economics.ucr.edu/repec/ucr/wpaper/202110.pdf
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    References listed on IDEAS

    as
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    Keywords

    Lagrange multiplier test; fixed effects; local power; error component model;
    All these keywords.

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