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Faculty of Economics

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Jochmans, K.

A Portmanteau Test for Correlation in Short Panels


Abstract: Inoue and Solon (2006, A Portmanteau test for serially correlated errors in fixed effects models, Econometric Theory 22, 835-851) presented an elegant approach to test for serial correlation of arbitrary form in fixed-effect models for short panel data. Their approach requires the choice of a regularization parameter that may severely affect the power of the test and for which no optimal selection rule is available. We present a modified version of their test that uses strictly more information and does not require any regularization parameter. Monte Carlo simulations are provided to illustrate the power gains of our procedure.

Keywords: fixed effects, panel data, statistical power, serial correlation, test

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Published Version of Paper: A Portmanteau Test for Serial Correlation in Short Panels, Jochmans, K., Econometric Theory, forthcoming (2020)

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