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Tests of no cross-sectional error dependence in panel quantile regressions

Author

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  • Demetrescu, Matei
  • Hosseinkouchack, Mehdi
  • Rodrigues, Paulo M. M.

Abstract

This paper argues that cross-sectional dependence (CSD) is an indicator of misspecification in panel quantile regression (QR) rather than just a nuisance that may be accounted for with panel-robust standard errors. This motivates the development of a novel test for panel QR misspecification based on detecting CSD. The test possesses a standard normal limiting distribution under joint N, T asymptotics with restrictions on the relative rate at which N and T go to infinity. A finitesample correction improves the applicability of the test for panels with larger N. An empirical application to housing markets illustrates the use of the proposed cross-sectional dependence test.

Suggested Citation

  • Demetrescu, Matei & Hosseinkouchack, Mehdi & Rodrigues, Paulo M. M., 2023. "Tests of no cross-sectional error dependence in panel quantile regressions," Ruhr Economic Papers 1041, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:1041
    DOI: 10.4419/96973210
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    More about this item

    Keywords

    Cross-unit correlation; conditional quantile; factor model; exogeneity;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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