Testing for State Dependence in Binary Panel Data with Individual Covariates by a Modified Quadratic Exponential Model

TitleTesting for State Dependence in Binary Panel Data with Individual Covariates by a Modified Quadratic Exponential Model
Publication TypeJournal Article
Year of Publication2015
AuthorsBartolucci, F, Nigro, V, Pigini, C
JournalEconometric Reviews
Pagination1-37
KeywordsMethodology
Abstract

AbstractWe propose a test for state dependence in binary panel data with individual covariates. For this aim, we rely on a quadratic exponential model in which the association between the response variables is accounted for in a different way with respect to more standard formulations. The level of association is measured by a single parameter that may be estimated by a Conditional Maximum Likelihood (CML) approach. Under the dynamic logit model, the conditional estimator of this parameter converges to zero when the hypothesis of absence of state dependence is true. This allows us to implement a t-test for this hypothesis which may be very simply performed and attains the nominal significance level under several structures of the individual covariates. Through an extensive simulation study, we find that our test has good finite sample properties and it is more robust to the presence of (autocorrelated) covariates in the model specification in comparison with other existing testing procedures for state dependence. The proposed approach is illustrated by two empirical applications: the first is based on data coming from the Panel Study of Income Dynamics and concerns employment and fertility; the second is based on the Health and Retirement Study and concerns the self reported health status.

URLhttp://dx.doi.org/10.1080/07474938.2015.1060039
DOI10.1080/07474938.2015.1060039
Endnote Keywords

Conditional inference/Dynamic logit model/Quadratic exponential model/t-test

Endnote ID

999999

Citation Key6447