Description/Abstract
Chamberlain (1982) showed that the fixed effects (FE) specification imposes testable restrictions on the coefficients from regressions of all leads and lags of dependent variables on all leads and lags of independent variables. Angrist and Newey (1991) suggested computing this test statistic as the degrees of freedom times the R2 from a regression of within residuals on all leads and lags of the exogenous variables. Despite the simplicity of these tests, they are not commonly used in practice. Instead, a Hausman (1978) test is used based on a contrast of the fixed and random effects specifications. We advocate the use of the Chamberlain (1982) test if the researcher wants to settle on the FE specifications, we check this test's performance using Monte Carlo experiments, and we apply it to the crime example of Cornwell and Trumbull (1994).
Document Type
Working Paper
Date
2009
Keywords
Panel data, fixed effects (FE), random effects (RE), Chamberlain test, minimum chi-squared (MCS), Angrist-Newey test
Language
English
Series
Working Papers Series
Disciplines
Mathematics
Recommended Citation
Baltagi, Badi H.; Bresson, Georges; and Pirotte, Alain, "Testing the Fixed Effects Restrictions? A Monte Carlo Study of Chamberlain's Minimum Chi-Squared Test" (2009). Center for Policy Research. 51.
https://surface.syr.edu/cpr/51
Source
Metadata from RePEc
Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.
Additional Information
Working paper no. 115
Harvest from RePEc at http://repec.org