cdTest#

Purpose#

Runs cross-sectional dependence, CD, tests for panel data. The test statistics constructed from the mean t-statistic has an asymptotic standardized normal distribution and tests the null hypothesis that all series are I(1) against the alternative that all series are I(0)

Format#

cd = cdTest(res, model, grp_vector)#

Parameters:

res (Nx1 matrix) – residuals from panel data regression.
model (scalar) – indicates which test to run: 1 for Pesaran’s test, 2 for Friedman’s test, 3 for Frees’ test. Note: the only model appropriate for unbalanced data is model 1. This model will run by default if unbalanced panel data is detected.
grp (Nx1 matrix) – group indicator variable.

Returns:

cd (matrix) – test statistic

Examples#

Example One: Pesaran Test#

new;
cls;
library tsmt;

/*************************************
//Generate data
**************************************/
// Set panel size parameters
N = 48;
T = 17;

// Simulate balanced group vector
grp = vec(reshape(seqa(1, 1, N), 17, 48));

// Simulate random stacked residuals
rndseed 90782;
y = rndn(T*N, 1);

/*************************************
/Run tests
**************************************/
// Run pesaran test [model = 1]
z1 = cdTest(y, 1, grp);

This prints the following results to the Command Window:

Test:                                    Pesaran Test (2004)
Timespan:                                            Unknown
Ho:                             Cross-sectional independence
N. Obs:                                                   17
N. Groups:                                                48
Panel Type:                                         Balanced
============================================================

CD-stat                                                0.780
P-val                                                  0.218
============================================================

Cannot reject the null hypothesis of cross-sectional
independence.

Example Two: Friedman Test#

// Run Friedman test [model = 2]
z2 = cdTest(y, 2, grp);


// Run Frees test [model = 3]
z3 = cdTest(y, 3, grp);

The results printed to screen are

Test:                                        Friedman (1937)
Test Variable:
Timespan:                                            Unknown
Ho:                             Cross-sectional independence
Number of breaks:                                       None
N. Obs:                                                   17
N. Groups:                                                48
Panel Type:                                         Balanced
============================================================

CD-stat                                               21.771
P-val                                                  0.151
============================================================

Cannot reject the null hypothesis of cross-sectional
independence.

Library#

tsmt

Source#

cdtestbalanced.src