HAUSMAN’S SPECIFICATION TEST FOR PANEL DATA: PRACTICAL TIPS

Research output: Chapter in Book/Entry/PoemChapter

Abstract

This chapter revisits the Hausman (1978) test for panel data. It emphasizes that it is a general specification test and that rejection of the null signals misspecification and is not an endorsement of the fixed effects estimator as is done in practice. Non-rejection of the null provides support for the random effects estimator which is efficient under the null. The chapter offers practical tips on what to do in case the null is rejected including checking for endogeneity of the regressors, misspecified dynamics, and applying a nonparametric Hausman test, see Amini, Delgado, Henderson, and Parmeter (2012, chapter 16). Alternatively, for the fixed effects die hard, the chapter suggests testing the fixed effects restrictions before adopting this estimator. The chapter also recommends a pretest estimator that is based on an additional Hausman test based on the difference between the Hausman and Taylor estimator and the fixed effects estimator.

Original languageEnglish (US)
Title of host publicationAdvances in Econometrics
PublisherEmerald Publishing
Pages13-24
Number of pages12
DOIs
StatePublished - Apr 5 2024

Publication series

NameAdvances in Econometrics
Volume46
ISSN (Print)0731-9053

Keywords

  • fixed and random effects
  • Hausman and Taylor estimator
  • Hausman test
  • misspecification
  • Mundlaregression
  • Panel data

ASJC Scopus subject areas

  • Economics and Econometrics

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