TY - JOUR
T1 - The impact of a Hausman pretest on the size of a hypothesis test
T2 - The panel data case
AU - Guggenberger, Patrik
N1 - Funding Information:
The author would like to thank a co-editor, an associate editor, two referees, Iván Fernández-Val, Yixiao Sun, and Jeffrey Wooldridge for excellent comments, the NSF for support under grant number SES-0748922, the Alfred P. Sloan Foundation for a 2009 fellowship, and seminar and conference participants at various places.
PY - 2010/6
Y1 - 2010/6
N2 - The size properties of a two-stage test in a panel data model are investigated where in the first stage a Hausman (1978) specification test is used as a pretest of the random effects specification and in the second stage, a simple hypothesis about a component of the parameter vector is tested, using a t-statistic that is based on either the random effects or the fixed effects estimator depending on the outcome of the Hausman pretest. It is shown that the asymptotic size of the two-stage test equals 1 for empirically relevant specifications of the parameter space. The size distortion is caused mainly by the poor power properties of the pretest. Given these results, we recommend using a t-statistic based on the fixed effects estimator instead of the two-stage procedure.
AB - The size properties of a two-stage test in a panel data model are investigated where in the first stage a Hausman (1978) specification test is used as a pretest of the random effects specification and in the second stage, a simple hypothesis about a component of the parameter vector is tested, using a t-statistic that is based on either the random effects or the fixed effects estimator depending on the outcome of the Hausman pretest. It is shown that the asymptotic size of the two-stage test equals 1 for empirically relevant specifications of the parameter space. The size distortion is caused mainly by the poor power properties of the pretest. Given these results, we recommend using a t-statistic based on the fixed effects estimator instead of the two-stage procedure.
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U2 - 10.1016/j.jeconom.2009.11.003
DO - 10.1016/j.jeconom.2009.11.003
M3 - Article
AN - SCOPUS:77950519249
SN - 0304-4076
VL - 156
SP - 337
EP - 343
JO - Journal of Econometrics
JF - Journal of Econometrics
IS - 2
ER -