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

pwartest {plm} | R Documentation

## 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, ...)
    ## S3 method for class 'panelmodel'
    pwartest(x, ...)
    ## S3 method for class 'formula'
    pwartest(x, data, ...)

### Arguments

`x` | an object of class `formula` or of class `panelmodel`,
`data` | a `data.frame`,
`...` | further arguments to be passed on to `linearHypothesis` or to `vcovHC`.

### Details

As Wooldridge (2003/2010, Sec. 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(\hat{u}_{it}, \hat{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: \hat{u}_{i,t} = α + δ \hat{u}_{i,t-1} + η_{i,t}. Rejecting the restriction δ = -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 `linearHypothesis()` to the latter model to test the above restriction on δ, setting the covariance matrix to `vcovHC` with the option `method="arellano"` to control for serial correlation.

Unlike the `pbgtest` and `pdwtest`, this test does not rely on large–T asymptotics and has therefore good properties in “short” panels. Furthermore, it is robust to general heteroskedasticity.

### Value

An object of class `"htest"`.

### Author(s)

Giovanni Millo

### References

Wooldridge, J.M. (2002) Econometric Analysis of Cross-Section and Panel Data, MIT Press, Sec. 10.5.4, pp. 274–276.

Wooldridge, J.M. (2010) Econometric analysis of cross-section and panel data, 2nd ed., MIT Press, Sec. 10.5.4, pp. 310–312.

### See Also

`pwfdtest`, `pdwtest`, `pbgtest`, `pbltest`, `pbsytest`.

### Examples

    data("EmplUK", package = "plm")
    pwartest(log(emp) ~ log(wage) + log(capital), data = EmplUK)

[Package plm version 1.6-5 Index]