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Exponent of Cross-sectional Dependence: Estimation and Inference

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Listed:
  • Bailey, Natalia

    (University of Cambridge)

  • Kapetanios, George

    (Queen Mary, University of London)

  • Pesaran, M. Hashem

    (University of Cambridge)

Abstract

An important issue in the analysis of cross-sectional dependence which has received renewed interest in the past few years is the need for a better understanding of the extent and nature of such cross dependencies. In this paper we focus on measures of cross-sectional dependence and how such measures are related to the behaviour of the aggregates defined as cross-sectional averages. We endeavour to determine the rate at which the cross-sectional weighted average of a set of variables appropriately demeaned, tends to zero. One parameterisation sets this to be O(N^2?-2), for 1/2

Suggested Citation

  • Bailey, Natalia & Kapetanios, George & Pesaran, M. Hashem, 2012. "Exponent of Cross-sectional Dependence: Estimation and Inference," IZA Discussion Papers 6318, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6318
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    cross correlations; cross-sectional dependence; cross-sectional averages; weak and strong factor models; Capital Asset Pricing Model;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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