Testing for cross-sectional dependence in a panel factor model using the wild bootstrap F test

摘要

This paper considers testing for cross-sectional dependence in a panel factor model. Based on the model considered by Bai (Econometrica 71: 135-171, 2003), we investigate the use of a simple F test for testing for cross-sectional dependence when the factor may be known or unknown. The limiting distributions of these F test statistics are derived when the cross-sectional dimension and the time-series dimension are both large. The main contribution of this paper is to propose a wild bootstrap F test which is shown to be consistent and which performs well in Monte Carlo simulations especially when the factor is unknown.