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Mathematics, Vol. 12, Pages 1475: An Ad Hoc Procedure for Testing Serial Correlation in Spatial Fixed-Effects Panels
Mathematics doi: 10.3390/math12101475
Authors: Giovanni Millo
We consider testing for error persistence in spatial panels with (potentially correlated) individual heterogeneity. We propose two variants of an ad hoc testing procedure based on first transforming out the individual effects, either by time-demeaning or by taking forward orthogonal deviations, then estimating an encompassing spatio-temporal model. The procedure can also be employed under the random effects assumption, in which case, although suboptimal, it can be computationally cheaper and safer than existing tests. We report Monte Carlo simulations demonstrating satisfactory empirical properties.
