Detecting Neglected Parameter Heterogeneity with Chow Tests

Joachim Zietz

No 200503, Working Papers from Middle Tennessee State University, Department of Economics and Finance

Abstract: The paper demonstrates through a number of Monte-Carlo experiments that, for the type of cross-section data sets typically encountered in applied economics, Chow tests on sorted variations of the data matrix can detect neglected parameter heterogeneity. The paper focuses on heterogeneity in the behavioral responses of economic actors that belong to different economically meaningful groups, such as the young, middle-aged, and old. Since the suggested methodology is easy to implement yet powerful, its routine use by applied economists would be desirable given the very significant estimation bias that can result from neglecting parameter heterogeneity.

Keywords: Parameter Heterogeneity; Chow Test; Cross-Section Data; Monte-Carlo Study (search for similar items in EconPapers)
JEL-codes: C21 C52 (search for similar items in EconPapers)
Date: 2005-03
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http://capone.mtsu.edu/berc/working/WP-March%202005-Zietz.pdf (application/pdf)

Related works:
Journal Article: Detecting neglected parameter heterogeneity with Chow tests (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:mts:wpaper:200503

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