Cross-Sectional Error Dependence in Panel Quantile Regressions

Paulo Rodrigues and Matei Demetrescu

Working Papers from Banco de Portugal, Economics and Research Department

Abstract: This paper shows that cross-sectional dependence (CSD) is an indicator of misspecification in panel QR rather than just a nuisance that may be accounted for with panel-robust standard errors. This motivates the development of a novel test for panel QR misspecification based on detecting CSD. The test possesses a standard normal limiting distribution under joint N; T asymptotics with restrictions on the relative rate at which N and T go to infinity. A finitesample correction improves the applicability of the test for panels with larger N. An empirical application illustrates the use of the proposed cross-sectional dependence test.

JEL-codes: C12 C23 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ecm
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Persistent link: https://EconPapers.repec.org/RePEc:ptu:wpaper:w202213

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