pwartest: Wooldridge Test for AR(1) Errors in FE Panel Models

Description

Test of serial correlation for (the idiosyncratic component of) the errors in fixed-effects panel models.

Usage

pwartest(x, data, ...)

Arguments

an object of class formula,

data

an object of class pdata.frame

...

further arguments to be passed on to linear.hypothesis or to pvcovHC

Value

An object of class "htest".

Details

As Wooldridge (2003, 10.5.4) observes, under the null of no serial correlation in the errors, the residuals of a FE model must be negatively serially correlated, with $cor(u_{it}, u_{is})=-1/(T-1)$ for each $t,s$ . He suggests basing a test for this null hypothesis on a pooled regression of FE residuals on their first lag: $u_{i,t}=+ u_{i,t-1} + _{i,t}$. Rejecting the restriction $= -1/(T-1)$ makes us conclude against the original null of no serial correlation. pwartest estimates the within model and retrieves residuals, then estimates an AR(1) pooling model on them. The test statistic is obtained by applying linear.hypothesis() to the latter model to test the above restriction on $$, setting the covariance matrix to pvcovHC with the option method="arellano" to control for serial correlation. Unlike the pbgtest and pdwtest, this test does not rely on T-asymptotics and has therefore good properties in ``short'' panels. Furthermore, it is robust to general heteroskedasticity. Wooldridge, J.M. (2002) Econometric analysis of cross-section and panel data, MIT Press, 10.5.4, page 274. pdwtest, pbgtest data("EmplUK", package="plm") pwartest(log(emp) ~ log(wage) + log(capital), data=EmplUK) htest