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Mean Group Estimation in Presence of Weakly Cross-Correlated Estimators

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  • Alexander Chudik
  • M. Hashem Pesaran

Abstract

This paper extends the mean group (MG) estimator for random coefficient panel data models by allowing the underlying individual estimators to be weakly cross-correlated. Weak cross-sectional dependence of the individual estimators can arise, for example, in panels with spatially correlated errors. We establish that the MG estimator is asymptotically correctly centered, and its asymptotic covariance matrix can be consistently estimated. The random coefficient specification allows for correct inference even when nothing is known about the weak cross-sectional dependence of the errors. This is in contrast to the well-known homogeneous case, where cross-sectional dependence of errors results in incorrect inference unless the nature of the cross-sectional error dependence is known and can be taken into account. Evidence on small sample performance of the MG estimators is provided using Monte Carlo experiments with both strictly and weakly exogenous regressors and cross-sectionally correlated innovations.

Suggested Citation

  • Alexander Chudik & M. Hashem Pesaran, 2018. "Mean Group Estimation in Presence of Weakly Cross-Correlated Estimators," Globalization Institute Working Papers 349, Federal Reserve Bank of Dallas.
  • Handle: RePEc:fip:feddgw:349
    DOI: 10.24149/gwp349
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    References listed on IDEAS

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    1. Geert Dhaene & Koen Jochmans, 2015. "Split-panel Jackknife Estimation of Fixed-effect Models," Review of Economic Studies, Oxford University Press, vol. 82(3), pages 991-1030.
    2. Alexander Chudik & M. Hashem Pesaran & Jui‐Chung Yang, 2018. "Half‐panel jackknife fixed‐effects estimation of linear panels with weakly exogenous regressors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(6), pages 816-836, September.
    3. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09ij4j0h0h1 is not listed on IDEAS
    4. Pesaran, M. Hashem & Tosetti, Elisa, 2011. "Large panels with common factors and spatial correlation," Journal of Econometrics, Elsevier, vol. 161(2), pages 182-202, April.
    5. Pesaran M.H. & Schuermann T. & Weiner S.M., 2004. "Modeling Regional Interdependencies Using a Global Error-Correcting Macroeconometric Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 129-162, April.
    6. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    7. Kelejian, Harry H. & Prucha, Ingmar R., 2007. "HAC estimation in a spatial framework," Journal of Econometrics, Elsevier, vol. 140(1), pages 131-154, September.
    8. Pesaran, M. Hashem, 2015. "Time Series and Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780198759980, Decembrie.
    9. repec:hal:journl:peer-00796743 is not listed on IDEAS
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    Citations

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    Cited by:

    1. Aladejare, Samson Adeniyi, 2023. "Economic prosperity, asymmetric natural resource income, and ecological demands in resource-reliant economies," Resources Policy, Elsevier, vol. 82(C).
    2. Michele Aquaro & Natalia Bailey & M. Hashem Pesaran, 2021. "Estimation and inference for spatial models with heterogeneous coefficients: An application to US house prices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(1), pages 18-44, January.
    3. Namahoro, J.P. & Wu, Q. & Su, H., 2023. "Wind energy, industrial-economic development and CO2 emissions nexus: Do droughts matter?," Energy, Elsevier, vol. 278(PA).
    4. Liu, Nan & Teng, Long & Tian, Wenjuan & Li, Ying, 2023. "Does digitalization enhance fossil fuels resources efficiency?," Resources Policy, Elsevier, vol. 85(PA).
    5. Rabeya Khatoon & Md Emran Hasan & Md Wahid Ferdous Ibon & Shahidul Islam & Jeenat Mehareen & Rubaiya Murshed & Md Nahid Ferdous Pabon & Md. Jillur Rahman & Musharrat Shabnam Shuchi, 2022. "Aggregation, asymmetry, and common factors for Bangladesh’s exchange rate–trade balance relation," Empirical Economics, Springer, vol. 62(6), pages 2739-2770, June.
    6. Ahmed, Rashad, 2023. "Flights-to-safety and macroeconomic adjustment in emerging markets: The role of U.S. monetary policy," Journal of International Money and Finance, Elsevier, vol. 133(C).
    7. Ahmed, Rashad, 2020. "Global Flight-to-Safety Shocks," MPRA Paper 103501, University Library of Munich, Germany.
    8. Alexander Chudik & M. Hashem Pesaran & Alessandro Rebucci, 2020. "Voluntary and Mandatory Social Distancing: Evidence on COVID-19 Exposure Rates from Chinese Provinces and Selected Countries," Globalization Institute Working Papers 382, Federal Reserve Bank of Dallas.
    9. Ahmed, Rashad, 2023. "Global commodity prices and macroeconomic fluctuations in a low interest rate environment," Energy Economics, Elsevier, vol. 127(PB).
    10. Daniel Fehrle, 2021. "Hedging Against Inflation: Housing vs. Equity," Discussion Paper Series 342, Universitaet Augsburg, Institute for Economics.
    11. Ge, Shuyi & Li, Shaoran & Linton, Oliver, 2023. "News-implied linkages and local dependency in the equity market," Journal of Econometrics, Elsevier, vol. 235(2), pages 779-815.
    12. Alexander Chudik & M. Hashem Pesaran & Alessandro Rebucci, 2021. "COVID-19 Time-Varying Reproduction Numbers Worldwide: An Empirical Analysis of Mandatory and Voluntary Social Distancing," Globalization Institute Working Papers 407, Federal Reserve Bank of Dallas.
    13. Denis Tverskoi & Andrea Guido & Giulia Andrighetto & Angel Sánchez & Sergey Gavrilets, 2023. "Disentangling material, social, and cognitive determinants of human behavior and beliefs," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-13, December.

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    More about this item

    Keywords

    Mean Group Estimator; Cross-Sectional Dependence; spatial models; Panel Data;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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