Diagnostics for Group Effects in Regression Analysis

Abstract

The diagnostic tools examined in this article are applicable to regressions estimated with panel data or cross-sectional data drawn from a population with grouped structure. The diagnostic tools considered include (a) tests for the existence of group effects under both fixed and random effects models, (b) checks for outlying groups, and (c) specification tests for comparing the fixed and random effects models. A group-specific counterpart to the studentized residual is introduced. The methods are illustrated using a hedonic housing price regression.

KEY WORDS:

• Regression diagnostics
• Variance components
• Grouped populations
• Studentized residuals
• Hedonic prices
• Specification tests