Specification Test for Panel Data Models with Interactive Fixed Effects

In this paper, we propose a consistent nonparametric test for linearity in a large dimensional panel data model with interactive fixed effects. Both lagged dependent variables and conditional heteroskedasticity of unknown form are allowed in the model. We estimate the model under the null hypothesis...

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Main Authors: SU, Liangjun, JIN, Sainan, ZHANG, Yonghui
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Language:English
Published: Institutional Knowledge at Singapore Management University 2014
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Online Access:https://ink.library.smu.edu.sg/soe_research/1593
https://ink.library.smu.edu.sg/context/soe_research/article/2592/viewcontent/08_2014.pdf
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spelling sg-smu-ink.soe_research-25922019-04-19T08:19:33Z Specification Test for Panel Data Models with Interactive Fixed Effects SU, Liangjun JIN, Sainan ZHANG, Yonghui In this paper, we propose a consistent nonparametric test for linearity in a large dimensional panel data model with interactive fixed effects. Both lagged dependent variables and conditional heteroskedasticity of unknown form are allowed in the model. We estimate the model under the null hypothesis of linearity to obtain the restricted residuals which are then used to construct the test statistic. We show that after being appropriately centered and standardized, the test statistic is asymptotically normally distributed under both the null hypothesis and a sequence of Pitman local alternatives by using the concept of conditional strong mixing that was recently introduced by Prakasa Rao (2009). To improve the finite sample performance, we propose a bootstrap procedure to obtain the bootstrap p-value. A small set of Monte Carlo simulations illustrates that our test performs well in finite samples. An application to an economic growth panel dataset indicates significant nonlinear relationships between economic growth, initial income level and capital accumulation. 2014-08-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soe_research/1593 https://ink.library.smu.edu.sg/context/soe_research/article/2592/viewcontent/08_2014.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Economics eng Institutional Knowledge at Singapore Management University Common factors Conditional strong mixing Cross-sectional dependence Economic growth Interactive fixed effects Linearity Panel data models Specification test Economics Econometrics
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Common factors
Conditional strong mixing
Cross-sectional dependence
Economic growth
Interactive fixed effects
Linearity
Panel data models
Specification test
Economics
Econometrics
spellingShingle Common factors
Conditional strong mixing
Cross-sectional dependence
Economic growth
Interactive fixed effects
Linearity
Panel data models
Specification test
Economics
Econometrics
SU, Liangjun
JIN, Sainan
ZHANG, Yonghui
Specification Test for Panel Data Models with Interactive Fixed Effects
description In this paper, we propose a consistent nonparametric test for linearity in a large dimensional panel data model with interactive fixed effects. Both lagged dependent variables and conditional heteroskedasticity of unknown form are allowed in the model. We estimate the model under the null hypothesis of linearity to obtain the restricted residuals which are then used to construct the test statistic. We show that after being appropriately centered and standardized, the test statistic is asymptotically normally distributed under both the null hypothesis and a sequence of Pitman local alternatives by using the concept of conditional strong mixing that was recently introduced by Prakasa Rao (2009). To improve the finite sample performance, we propose a bootstrap procedure to obtain the bootstrap p-value. A small set of Monte Carlo simulations illustrates that our test performs well in finite samples. An application to an economic growth panel dataset indicates significant nonlinear relationships between economic growth, initial income level and capital accumulation.
format text
author SU, Liangjun
JIN, Sainan
ZHANG, Yonghui
author_facet SU, Liangjun
JIN, Sainan
ZHANG, Yonghui
author_sort SU, Liangjun
title Specification Test for Panel Data Models with Interactive Fixed Effects
title_short Specification Test for Panel Data Models with Interactive Fixed Effects
title_full Specification Test for Panel Data Models with Interactive Fixed Effects
title_fullStr Specification Test for Panel Data Models with Interactive Fixed Effects
title_full_unstemmed Specification Test for Panel Data Models with Interactive Fixed Effects
title_sort specification test for panel data models with interactive fixed effects
publisher Institutional Knowledge at Singapore Management University
publishDate 2014
url https://ink.library.smu.edu.sg/soe_research/1593
https://ink.library.smu.edu.sg/context/soe_research/article/2592/viewcontent/08_2014.pdf
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