A Simple New Test for Slope Homogeniety in Panel Data Models with Interactive Effects
18 Pages Posted: 22 Dec 2014
Date Written: December 21, 2014
We consider the problem of testing for slope homogeneity in high-dimensional panel data models with cross-sectionally correlated errors. We consider a Swamy-type test for slope homogeneity by incorporating interactive fixed effects. We show that the proposed test statistic is asymptotically normal. Our test allows the explanatory variables to be correlated with the unobserved factors, factor loadings, or with both. Monte Carlo simulations demonstrate that the proposed test has good size control and good power.
Keywords: Cross-sectional dependence, Endogenous predictors, Slope homogeneity
JEL Classification: C12, C23
Suggested Citation: Suggested Citation