.- help for ^xttest2^ (SSC distribution, 16 August 2004) .- Breusch-Pagan LM test for cross-sectional correlation in fixed effects model ---------------------------------------------------------------------------- ^xttest2^ ^xttest2^ is for use with cross-section time-series data, following use of ^xtreg, fe^, ^xtgls^ or ^ivreg2^, and requiring prior use of ^tsset^. Description ----------- ^xttest2^ calculates the Breusch-Pagan statistic for cross-sectional independence in the residuals of a fixed effect regression model, following Greene (2000, p. 601). ^xtreg, fe^ estimates this model assuming independence of the errors. A likely deviation from independent errors in the context of pooled cross-section time-series data (or panel data) is likely to be contemporaneous correlations across cross-sectional units. These correlations are those exploited by Zellner's seemingly unrelated regression (SUR) estimator, and this test is provided by ^sureg, corr^ in that context. ^xttest2^ tests the hypothesis that the residual correlation matrix, computed over observations common to all cross-sectional units, is an identity matrix of order N_g, where N_g is the number of cross-sectional units. The resulting test statistic is distributed Chi-squared(d), where d=N_g * (N_g - 1) /2, under the null hypothesis of cross-sectional independence. In the context of an unbalanced panel, the observations used to calculate the test statistic are those available for all cross-sectional units. The number of available observations is reported, as is the estimated correlation matrix of the residuals over cross-sectional units. Since this routine makes use of Stata's matrix language, it cannot compute the test if the number of panels in the data exceeds the current matsize (^help matsize^). The test statistic, degrees of freedom and number of available observations are placed in the return array. Note that this Breusch-Pagan test is not that commonly employed to test for heteroskedasticity. Example ------- . ^use http://fmwww.bc.edu/ec-p/data/greene2000/tbl15-1.dta,clear^ . ^tsset firm year^ . ^xtreg i f c,fe^ . ^xttest2^ . ^xtgls i f c, p(h)^ . ^xttest2^ . ^ivreg2 i (f c = L.i year)^ . ^xttest2^ References ---------- Greene, W. 2000. Econometric Analysis. Upper Saddle River, NJ: Prentice--Hall. Acknowledgement ---------------- Thanks to Sylvain Friederich for suggesting that this routine be written. Author ------ Christopher F Baum, Boston College, USA baum@@bc.edu Also see -------- On-line: help for @sureg@, @xttest1@ (if installed), @bpagan@ (if installed), @ivreg2@ (if installed)