LM Tests for the Unbalanced Nested Panel Data Regression Model with Serially Correlated Errors

Badi Baltagi, Seuck Heun Song and Byoung Cheol Jung

Annals of Economics and Statistics, 2002, issue 65, 219-268

Abstract: This paper derives several Lagrange Multiplier tests for the unbalanced nested error component model with serially correlated remainder disturbances. The problems of overtesting and undertesting for serial correlation and zero random group and nested subgroup effects are considered. The joint test extends the earlier work of Breush and Pagan [1980] and King and Wu [1997] to the unbalanced nested error component regression model with serially correlated errors. Additionally, conditional LM tests, asymptotically local mean most powerful (LMMP) tests; modified Rao-Score tests that guard against local misspecification are proposed for this model. These generalize the work of Baltagi and Li [1995], Rahman and King [1998] and Bera and Yoon [1993]. Finally, Monte Carlo experiments are conducted to study the performance of these LM tests.

Date: 2002
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