Diagnostic Tests for Homoskedasticity in Spatial Cross-Sectional or Panel Models

42 Pages Posted: 27 Oct 2020 Last revised: 19 May 2022

See all articles by Badi H. Baltagi

Badi H. Baltagi

Syracuse University; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics; Syracuse University - Maxwell School of Citizenship and Public Affairs

Alain Pirotte

ERMES (CNRS), Université Panthéon-Assas Paris II; INRETS-DEST

Zhenlin Yang

Singapore Management University

Abstract

We propose an Adjusted Quasi-Score (AQS) method for constructing tests for homoskedasticity in spatial econometric models. We first obtain an AQS function by adjusting the score-type function from the given model to achieve unbiasedness, and then develop an Outer-Product-of-Martingale-Difference (OPMD) estimate of its variance. In standard problems where a genuine (quasi) score vector is available, the AQS-OPMD method leads to finite sample improved tests over the usual methods. More importantly in non-standard problems where a genuine (quasi) score is not available and the usual methods fail, the proposed AQS-OPMD method provides feasible solutions. The AQS tests are formally derived and asymptotic properties examined for three representative models: spatial cross-sectional, static or dynamic panel models. Monte Carlo results show that the proposed AQS tests have good finite sample properties.

Keywords: non-normality, martingale difference, incidental parameters, heteroskedasticity, fixed effects, adjusted quasi-scores, short dynamic panels, spatial effects

JEL Classification: C12, C18, C21, C23

Suggested Citation

Baltagi, Badi H. and Pirotte, Alain and Yang, Zhenlin, Diagnostic Tests for Homoskedasticity in Spatial Cross-Sectional or Panel Models. IZA Discussion Paper No. 13803, Available at SSRN: https://ssrn.com/abstract=3718183

Badi H. Baltagi (Contact Author)

Syracuse University ( email )

426 Eggers Hall
Syracuse, NY 13244-1020
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315-443-1630 (Phone)
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HOME PAGE: http://https://pbaltagi.wix.com/badibaltagi

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

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Bonn, D-53072
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Syracuse University - Maxwell School of Citizenship and Public Affairs ( email )

400 Eggers Hall
Syracuse, NY 13244
United States

Alain Pirotte

ERMES (CNRS), Université Panthéon-Assas Paris II ( email )

12 Place du Panthéon
Paris, Cedex 5, 75005
France

INRETS-DEST

23 rue Alfred Nobel
Champs sur Marne, 77420
France

Zhenlin Yang

Singapore Management University ( email )

School of Economics
90 Stamford Road
Singapore, 178903
Singapore
65 68280852 (Phone)
65 68280833 (Fax)

HOME PAGE: http://www.mysmu.edu/faculty/zlyang/

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