Tests of no cross-sectional error dependence in panel quantile regressions

Matei Demetrescu, Mehdi Hosseinkouchack and Paulo Rodrigues

No 1041, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: This paper argues that cross-sectional dependence (CSD) is an indicator of misspecification in panel quantile regression (QR) rather than just a nuisance that may be accounted for with panel-robust standard errors. This motivates the development of a novel test for panel QR misspecification based on detecting CSD. The test possesses a standard normal limiting distribution under joint N, T asymptotics with restrictions on the relative rate at which N and T go to infinity. A finitesample correction improves the applicability of the test for panels with larger N. An empirical application to housing markets illustrates the use of the proposed cross-sectional dependence test.

Keywords: Cross-unit correlation; conditional quantile; factor model; exogeneity (search for similar items in EconPapers)
JEL-codes: C12 C23 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ecm
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:1041

DOI: 10.4419/96973210

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