Fixed vs random: The Hausman test four decades later

Shahram Amini, Michael S. Delgado, Daniel J. Henderson, Christopher F. Parmeter

Research output: Chapter in Book/Report/Conference proceedingConference contribution

6 Scopus citations

Abstract

Hausman (1978) represented a tectonic shift in inference related to the specification of econometric models. The seminal insight that one could compare two models which were both consistent under the null spawned a test which was both simple and powerful. The so-called Hausman test has been applied and extended theoretically in a variety of econometric domains. This paper discusses the basic Hausman test and its development within econometric panel data settings since its publication. We focus on the construction of the Hausman test in a variety of panel data settings, and in particular, the recent adaptation of the Hausman test to semiparametric and nonparametric panel data models. We present simulation experiments which show the value of the Hausman test in a nonparametric setting, focusing primarily on the consequences of parametric model misspecification for the Hausman test procedure. A formal application of the Hausman test is also given focusing on testing between fixed and random effects within a panel data model of gasoline demand.

Original languageEnglish (US)
Title of host publicationEssays in Honor of Jerry Hausman
EditorsBadi Baltagi, Carter Hill, Whitney Newey, Halbert White
Pages479-513
Number of pages35
DOIs
StatePublished - Dec 1 2012
Externally publishedYes

Publication series

NameAdvances in Econometrics
Volume29
ISSN (Print)0731-9053

Keywords

  • Hausman test
  • Model misspecification
  • Monte Carlo
  • Nonparametric

ASJC Scopus subject areas

  • Economics and Econometrics

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    Amini, S., Delgado, M. S., Henderson, D. J., & Parmeter, C. F. (2012). Fixed vs random: The Hausman test four decades later. In B. Baltagi, C. Hill, W. Newey, & H. White (Eds.), Essays in Honor of Jerry Hausman (pp. 479-513). [17072665] (Advances in Econometrics; Vol. 29). https://doi.org/10.1108/S0731-9053(2012)0000029021