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A simple new test for slope homogeneity in panel data models with interactive effects

Ando, Tomohiro and Bai, Jushan (2014): A simple new test for slope homogeneity in panel data models with interactive effects.

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Abstract

We consider the problem of testing for slope homogeneity in high-dimensional panel data models with cross-sectionally correlated errors. We consider a Swamy-type test for slope homogeneity by incorporating interactive fixed effects. We show that the proposed test statistic is asymptotically normal. Our test allows the explanatory variables to be correlated with the unobserved factors, factor loadings, or with both. Monte Carlo simulations demonstrate that the proposed test has good size control and good power.

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