A Simple New Test for Slope Homogeniety in Panel Data Models with Interactive Effects

18 Pages Posted: 22 Dec 2014

See all articles by Tomohiro Ando

Tomohiro Ando

University of Melbourne - Melbourne Business School

Jushan Bai

Columbia University

Date Written: December 21, 2014

Abstract

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

Ando, Tomohiro and Bai, Jushan, A Simple New Test for Slope Homogeniety in Panel Data Models with Interactive Effects (December 21, 2014). Available at SSRN: https://ssrn.com/abstract=2541467 or http://dx.doi.org/10.2139/ssrn.2541467

Tomohiro Ando (Contact Author)

University of Melbourne - Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia

Jushan Bai

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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