arXiv 8 Oct 2018 · Econometrics · publishedJournal of Business and Economic Statistics (2021) · 27 citations (OpenAlex)
arXiv:1810.03715 · PDF · DOI · OpenAlex · Extracted main text
In this paper we consider the properties of the Pesaran (2004, 2015a) CD test for cross-section correlation when applied to residuals obtained from panel data models with many estimated parameters. We show that the presence of period-specific parameters leads the CD test statistic to diverge as length of the time dimension of the sample grows. This result holds even if cross-section dependence is correctly accounted for and hence constitutes an example of the Incidental Parameters Problem. The relevance of this problem is investigated both for the classical Time Fixed Effects estimator as well as the Common Correlated Effects estimator of Pesaran (2006). We suggest a weighted CD test statistic which re-establishes standard normal inference under the null hypothesis. Given the widespread use of the CD test statistic to test for remaining cross-section correlation, our results have far reaching implications for empirical researchers.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Pesaran, M. H (2004) General Diagnostic Tests for Cross Section Dependence in Panels | 1.000 | 7 | 5 | 100% |
| 2 | Pesaran, M. H (2015) Testing Weak Cross-Sectional Dependence in Large Panels | 1.000 | 5 | 4 | 100% |
| 3 | Pesaran, M. H (2006) Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure | 0.874 | 5 | 2 | 100% |
| 4 | Fernández-Val, I. and M. Weidner (2016) Individual and Time Effects in Nonlinear Panel Models with Large N, T | 0.811 | 4 | 2 | 100% |
| 5 | Eberhardt, M., C. Helmers, and H. Strauss (2013) Do Spillovers Matter When Estimating Private Returns to R&D? | 0.693 | 8 | 1 | 100% |
| Pesaran | unmatched citation key Pesaran | 0.693 | 7 | 1 | 100% |
| 7 | Juodis, A., H. Karabyk, and J. Westerlund (2020) On the Robustness of the Pooled CCE Estimator self | 0.693 | 5 | 1 | 100% |
| 8 | Everaert, G. and L. Pozzi (2014) The Predictability of Aggregate Consumption Growth in OECD Countries: A Panel Data Analysis | 0.644 | 2 | 2 | 100% |
| 9 | Neyman, J. and E. L. Scott (1948) Consistent Estimation from Partially Consistent Observations | 0.644 | 2 | 2 | 100% |
| Holly | unmatched citation key Holly | 0.511 | 2 | 1 | 100% |
Showing the top 10 of 82 scored citations. 2 of these could not be matched to a bibliography entry, so only the citation key is shown.
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