A Test for Slope Heterogeneity in Fixed Effects Models

Ted Juhl and Oleksandr Lugovskyy

Econometric Reviews, 2014, vol. 33, issue 8, 906-935

Abstract: Typical panel data models make use of the assumption that the regression parameters are the same for each individual cross-sectional unit. We propose tests for slope heterogeneity in panel data models. Our tests are based on the conditional Gaussian likelihood function in order to avoid the incidental parameters problem induced by the inclusion of individual fixed effects for each cross-sectional unit. We derive the Conditional Lagrange Multiplier test that is valid in cases where N → ∞ and T is fixed. The test applies to both balanced and unbalanced panels. We expand the test to account for general heteroskedasticity where each cross-sectional unit has its own form of heteroskedasticity. The modification is possible if T is large enough to estimate regression coefficients for each cross-sectional unit by using the MINQUE unbiased estimator for regression variances under heteroskedasticity. All versions of the test have a standard Normal distribution under general assumptions on the error distribution as N → ∞. A Monte Carlo experiment shows that the test has very good size properties under all specifications considered, including heteroskedastic errors. In addition, power of our test is very good relative to existing tests, particularly when T is not large.

Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://hdl.handle.net/10.1080/07474938.2013.806708 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:emetrv:v:33:y:2014:i:8:p:906-935

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/LECR20

DOI: 10.1080/07474938.2013.806708

Access Statistics for this article

Econometric Reviews is currently edited by Dr. Essie Maasoumi

More articles in Econometric Reviews from Taylor & Francis Journals
Bibliographic data for series maintained by ().