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A PORTMANTEAU TEST FOR CORRELATION IN SHORT PANELS

  • Koen Jochmans (a1)

Abstract

Inoue and Solon (2006, Econometric Theory 22, 835–851) presented a test against serial correlation of arbitrary form in fixed-effect models for short panel data. Implementing the test requires choosing a regularization parameter that may severely affect power and for which no optimal selection rule is available. We present a modified version of their test that does not require any regularization parameter. Asymptotic power calculations illustrate the improvement of our procedure. An extension of the approach that accommodates dynamic models is also provided.

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*Address correspondence to Koen Jochmans, Faculty of Economics, University of Cambridge, Austin Robinson Building, Sidgwick Avenue, Cambridge CB3 9DD, UK; e-mail: kj345@cam.ac.uk.

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Comments by Peter Phillips and an anonymous referee on an earlier version of this article were much appreciated. Financial support of the European Research Council through grant no. 715787 (MiMo) is gratefully acknowledged.

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References

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Ahn, S.C. & Schmidt, P. (1995) Efficient estimation of models for dynamic panel data. Journal of Econometrics 68, 527.
Andrews, D.W.K. (1987) Asymptotic results for generalized Wald tests. Econometric Theory 3, 348358.
Baltagi, B.H. & Li, Q. (1995) Testing AR (1) against MA(1) disturbances in an error component model. Journal of Econometrics 68, 133151.
Baltagi, B.H. & Wu, P.X. (1999) Unequally spaced panel data regressions with AR(1) disturbances. Econometric Theory 15, 814823.
Dhaene, G. & Jochmans, K. (2016) Likelihood inference in an autoregression with fixed effects. Econometric Theory 32, 11781215.
Drukker, D.M. (2003) Testing for serial correlation in linear panel-data models. Stata Journal 3, 168177.
Inoue, A. & Solon, G. (2006) A portmanteau test for serially correlated errors in fixed effects models. Econometric Theory 22, 835851.
Wooldridge, J.M. (2002) Econometric Analysis of Cross Section and Panel Data. MIT Press.

A PORTMANTEAU TEST FOR CORRELATION IN SHORT PANELS

  • Koen Jochmans (a1)

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