Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5058063 | Economics Letters | 2016 | 5 Pages |
â¢We provide a practical test for strict exogeneity in linear panel data models with fixed effects when N is large and T is fixed.â¢We establish the asymptotic theory of the test, propose a bootstrap procedure for the test and justify its validity.â¢Simulations are conducted for our proposed test in comparison with Wooldridge's Wald test.
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.