Testing Weak Cross-Sectional Dependence in Large Panels

Mohammad Pesaran

No 3800, CESifo Working Paper Series from CESifo

Abstract: This paper considers testing the hypothesis that errors in a panel data model are weakly Cross-sectionally dependent (CD), using the exponent of cross-sectional dependence introduced recently in Bailey, Kapetanios and Pesaran (2012). It is shown that the implicit null of the CD test depends on the relative expansion rates of N and T. It is argued that in the case of large N panels, the null of weak dependence is more appropriate than the null of independence which could be quite restrictive for large panels. Using Monte Carlo experiments, it is shown that the CD test has the correct size for values of the cross-sectional exponent that lie in the range [0, 1/4], for all combinations of N and T, and irrespective of whether the panel contains lagged values of the dependent variables, so long as there are no major asymmetries in the error distribution.

Keywords: exponent of cross-sectional dependence; diagnostic tests; panel data models; dynamic heterogenous panels (search for similar items in EconPapers)
JEL-codes: C12 C13 C33 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp3800.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 503 Service Unavailable

Related works:
Journal Article: Testing Weak Cross-Sectional Dependence in Large Panels (2015)
Working Paper: Testing Weak Cross-Sectional Dependence in Large Panels (2012)
Working Paper: Testing Weak Cross-Sectional Dependence in Large Panels (2012)
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:ces:ceswps:_3800

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().