This paper provides a practical test for strict exogeneity in linear panel data models with fixed effects when the number of individuals N goes to infinity while the number of time periods T is fixed. The test is based on the supremum of a sequence of Wald test statistics. Under suitable conditions, we establish the asymptotic distribution of the test statistic and consistency of the test. A bootstrap procedure is proposed to improve the finite sample performance and the validity of the procedure is justified. We investigate the finite sample performance of the test via a small set of Monte Carlo simulations.
Bootstrap, Fixed effects, Panel data, Strict exogeneity, Wald test
SU, Liangjun; ZHANG, Yonghui; and WEI, Jie.
A practical test for strict exogeneity in linear panel data models with fixed effects. (2016). Economics Letters. 147, 27-31. Research Collection School Of Economics.
Available at: https://ink.library.smu.edu.sg/soe_research/1936
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