The Incidental Parameters Problem in Testing for Remaining Cross-Section Correlation
研究了Pesaran CD检验在含大量估计参数的面板数据残差中的性质，发现时期特定参数会导致检验统计量发散，并提出加权CD检验以恢复标准正态推断，对实证研究者有重要启示。
In this article, we consider the properties of the Pesaran CD test for cross-section correlation when applied to residuals obtained from panel data models with many estimated parameters. We show that the presence of period-specific parameters leads the CD test statistic to diverge as the time dimension of the sample grows. This result holds even if cross-section dependence is correctly accounted for and hence constitutes an example of the incidental parameters problem. The relevance of this problem is investigated for both the classical two-way fixed-effects estimator and the Common Correlated Effects estimator of Pesaran. We suggest a weighted CD test statistic which re-establishes standard normal inference under the null hypothesis. Given the widespread use of the CD test statistic to test for remaining cross-section correlation, our results have far reaching implications for empirical researchers.