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Detecting neglected parameter heterogeneity with Chow tests

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  • Joachim Zietz

Abstract

The paper demonstrates through a number of Monte Carlo experiments that, for the type of cross-section data sets typically encountered in applied economics, Chow tests on sorted variations of the data matrix can detect neglected parameter heterogeneity. The paper focuses on heterogeneity in the behavioural responses of economic actors that belong to different economically meaningful groups, such as the young, middle-aged, and old. Since the suggested methodology is easy to implement yet powerful, its routine use by applied economists would be desirable given the very significant estimation bias that can result from neglecting parameter heterogeneity.

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  • Joachim Zietz, 2006. "Detecting neglected parameter heterogeneity with Chow tests," Applied Economics Letters, Taylor & Francis Journals, vol. 13(6), pages 369-374.
    • Handle: RePEc:taf:apeclt:v:13:y:2006:i:6:p:369-374
    DOI: 10.1080/13504850500378759
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    Cited by:

    1. Ann-Sofie Isaksson, 2011. "Social divisions and institutions: assessing institutional parameter variation," Public Choice, Springer, vol. 147(3), pages 331-357, June.

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    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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