Publication Type

Journal Article

Version

submittedVersion

Publication Date

1-2021

Abstract

Simple and reliable tests are proposed for testing the existence of dynamic and/or spatial effects in fixed-effects panel data models with small T and possibly heteroskedastic errors. The tests are constructed based on the adjusted quasi scores (AQS), which correct the conditional quasi scores given the initial differences to account for the effect of initial values. To improve the finite sample performance, standardized AQS tests are also derived, which are shown to have much improved finite sample properties. All the proposed tests are robust against nonnormality, but some are not robust against cross-sectional heteroskedasticity (CH). A different type of adjustments is made on the AQS functions, leading to a set of tests that are fully robust against unknown CH. Monte Carlo results show excellent finite sample performance of the standardized versions of the AQS tests.

Keywords

Adjusted quasi scores, Dynamic effect, Fixed effects, Heteroskedasticity, Initial conditions free, Nonnormality, Short panels, Tests, Spatial effects

Discipline

Econometrics

Research Areas

Econometrics

Publication

Empirical Economics

Volume

60

Issue

1

First Page

51

Last Page

92

ISSN

0377-7332

Identifier

10.1007/s00181-020-01935-y

Publisher

Springer (part of Springer Nature): Springer Open Choice Hybrid Journals

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