Breusch and Pagan’s (1980) Test Revisited

Jinyong Hahn and Ruoyao Shi ()

No 202110, Working Papers from University of California at Riverside, Department of Economics

Abstract: We consider the local asymptotic power of Breusch and Pagan’s (1980) test for the general nonlinear models. The test is motivated by the random effects, but we consider the fixed effects for the alternative hypothesis, derive the local power, and show that the test has a power to detect the fixed effects. We also examine how the estimation noise of the maximum likelihood estimator changes the asymptotic distribution of the test under the null, and show that such a noise may be ignored in a large n large T situation, which may have a convenient implication in the possible application of the test to network models.

Keywords: Lagrange multiplier test; fixed effects; local power; error component model (search for similar items in EconPapers)
Pages: 39 Pages
Date: 2021-06
New Economics Papers: this item is included in nep-ecm, nep-net and nep-ore
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https://economics.ucr.edu/repec/ucr/wpaper/202110.pdf First version, 2021 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ucr:wpaper:202110

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