 A test for Kronecker Product Structure covariance matrixPatrik Guggenberger, Frank Kleibergen and Sophocles Mavroeidis Journal of Econometrics, 2023, vol. 233, issue 1, 88-112 Abstract: We propose a test for a covariance matrix to have Kronecker Product Structure (KPS). KPS implies a reduced rank restriction on a certain transformation of the covariance matrix and the new procedure is an adaptation of the Kleibergen and Paap (2006) reduced rank test. To derive the limiting distribution of the Wald type test statistic proves challenging partly because of the singularity of the covariance matrix estimator that appears in the weighting matrix. We show that the test statistic has a χ2 limiting null distribution with degrees of freedom equal to the number of restrictions tested. Local asymptotic power results are derived. Monte Carlo simulations reveal good size and power properties of the test. Re-examining fifteen highly cited papers conducting instrumental variable regressions, we find that KPS is not rejected in 56 out of 118 specifications at the 5% nominal size. Keywords: Covariance matrix; Heteroskedasticity; Invariance; Kronecker product structure; Linear instrumental variables regression model; Reduced rank; Weak identification (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:233:y:2023:i:1:p:88-112 DOI: 10.1016/j.jeconom.2022.01.005 Access Statistics for this article Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson More articles in Journal of Econometrics from Elsevier |
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