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The Asymptotics for Panel Models with Common Shocks

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Abstract

This paper develops a novel asymptotic theory for panel models with common shocks. We assume that contemporaneous correlation can be generated by both the presence of common regressors among units and weak spatial dependence among the error terms. Several characteristics of the panel are considered: cross sectional and time series dimensions can either be fixed or large; factors can either be observable or unobservable; the factor model can describe either cointegration relationship or a spurious regression, and we also consider the stationary case. We derive the rate of convergence and the distribution limits for the ordinary least squares (OLS) estimates of the model parameters under all the aforementioned cases.

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Bibliographic Info

Paper provided by Center for Policy Research, Maxwell School, Syracuse University in its series Center for Policy Research Working Papers with number 77.

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Length: 57 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:max:cprwps:77

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Keywords: cross-sectional dependence; common shocks; nonstationary panel;

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References

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  1. Ahn, Seung Chan & Hoon Lee, Young & Schmidt, Peter, 2001. "GMM estimation of linear panel data models with time-varying individual effects," Journal of Econometrics, Elsevier, vol. 101(2), pages 219-255, April.
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  8. Badi H. Baltagi & Chihwa Kao, 2000. "Nonstationary Panels, Cointegration in Panels and Dynamic Panels: A Survey," Center for Policy Research Working Papers 16, Center for Policy Research, Maxwell School, Syracuse University.
  9. Donald W.K. Andrews, 2003. "Cross-section Regression with Common Shocks," Cowles Foundation Discussion Papers 1428, Cowles Foundation for Research in Economics, Yale University.
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  24. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Cowles Foundation Discussion Papers 1222, Cowles Foundation for Research in Economics, Yale University.
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Cited by:
  1. Bittencourt, Manoel, 2011. "Inflation and financial development: Evidence from Brazil," Economic Modelling, Elsevier, vol. 28(1), pages 91-99.
  2. Chihwa Kao & Lorenzo Trapani & Giovanni Urga, 2007. "Modelling and Testing for Structural Changes in Panel Cointegration Models with Common and Idiosyncratic Stochastic Trend," Center for Policy Research Working Papers 92, Center for Policy Research, Maxwell School, Syracuse University.
  3. Castagnetti, Carolina & Rossi, Eduardo, 2008. "Estimation methods in panel data models with observed and unobserved components: a Monte Carlo study," MPRA Paper 26196, University Library of Munich, Germany.

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