Testing Slope Homogeneity in Large Panels

Mohammad Pesaran and Takashi Yamagata

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper proposes a modified 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). We exploit the cross section dispersion of individual slopes weighted by their relative precision. Using Monte Carlo experiments, we show 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 test performs well for moderate values of the root of the autoregressive process, but with roots near unity a bias-corrected bootstrapped version performs well even if N is large relative to T. The cross section dispersion tests are used to test the homogeneity of slopes in autoregressive models of individual earnings using the PSID data and show statistically significant evidence of slope heterogeneity in the earnings dynamics.

Keywords: Testing Slope Homogeneity; Hausman Type Tests; Cross Section Dispersion Tests; Monte Carlo Results; PSID Earnings Dynamics (search for similar items in EconPapers)
JEL-codes: C12 C33 (search for similar items in EconPapers)
Pages: 53
Date: 2005-03
New Economics Papers: this item is included in nep-ecm and nep-ets
Note: EM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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https://files.econ.cam.ac.uk/repec/cam/pdf/cwpe0513.pdf (application/pdf)

Related works:
Journal Article: Testing slope homogeneity in large panels (2008)
Working Paper: Testing Slope Homogeneity in Large Panels (2005)
Working Paper: Testing Slope Homogeneity in Large Panels (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0513

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