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Cross-Sectional Error Dependence in Panel Quantile Regressions

Author

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  • Paulo M.M. Rodrigues
  • Matei Demetrescu

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 finitesample 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.

Suggested Citation

  • Paulo M.M. Rodrigues & Matei Demetrescu, 2022. "Cross-Sectional Error Dependence in Panel Quantile Regressions," Working Papers w202213, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w202213
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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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