Cross-sectional error dependence in panel quantile regressions

Matei Demetrescu, Mehdi Hosseinkouchack, Paulo M. M. Rodrigues

Research output: Working paper

Abstract

This paper shows that cross-sectional dependence (CSD) is an indicator of misspecification in panel 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 finite-sample correction improves the applicability of the test for panels with larger N. An empirical application illustrates the use of the proposed cross-sectional dependence test.
Original languageEnglish
Place of PublicationLisboa
PublisherBanco de Portugal
ISBN (Electronic)978-989-678-839-1
Publication statusPublished - Oct 2022

Publication series

Name
ISSN (Electronic)2182-0422

Keywords

  • Cross-unit correlation
  • Conditional quantile
  • Factor model
  • Exogeneity

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