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Consistent Estimation of Panel Data Models with a Multi-factor Error Structure

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  • Bin Peng

    (Monash University)

  • Giovanni Forchini

    (University of Surrey)

Abstract

This paper considers the panel data model with a multifactor structure in both the errors and the regressors which was studied by Pesaran (“Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure, Econometrica, 2006). Estimators are proposed that are consistent for fixed T as N tends to infinity. By allowing T to be fixed some of the assumptions imposed by Pesaran are relaxed and, at the same time, some of the complexities of the large N and T asymptotics are bypassed. A small Monte Carlo simulation shows that these new estimators are very accurate for very small values of T .

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File URL: http://www.fahs.surrey.ac.uk/economics/discussion_papers/2012/DP01-12.pdf
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Bibliographic Info

Paper provided by School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 0112.

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Length: 40 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:sur:surrec:0112

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Web page: http://www.surrey.ac.uk/economics/
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  1. Case, Anne C, 1991. "Spatial Patterns in Household Demand," Econometrica, Econometric Society, vol. 59(4), pages 953-65, July.
  2. Phillips, Peter C.B. & Sul, Donggyu, 2007. "Bias in dynamic panel estimation with fixed effects, incidental trends and cross section dependence," Journal of Econometrics, Elsevier, vol. 137(1), pages 162-188, March.
  3. Jerry Coakley & Ana-Maria Fuertes & Ron Smith, 2002. "A Principal Components Approach to Cross-Section Dependence in Panels," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B5-3, International Conferences on Panel Data.
  4. Vasilis Sarafidis & Donald Robertson, 2009. "On the impact of error cross-sectional dependence in short dynamic panel estimation," Econometrics Journal, Royal Economic Society, vol. 12(1), pages 62-81, 03.
  5. Sarafidis, Vasilis & Yamagata, Takashi & Robertson, Donald, 2009. "A test of cross section dependence for a linear dynamic panel model with regressors," Journal of Econometrics, Elsevier, vol. 148(2), pages 149-161, February.
  6. 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.
  7. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, vol. 92(1), pages 1-45, September.
  8. Rafael E. De Hoyos & Vasilis Sarafidis, 2006. "Testing for cross-sectional dependence in panel-data models," Stata Journal, StataCorp LP, vol. 6(4), pages 482-496, December.
  9. Sarafidis, Vasilis, 2009. "GMM Estimation of Short Dynamic Panel Data Models With Error Cross-Sectional Dependence," MPRA Paper 25176, University Library of Munich, Germany.
  10. Jushan Bai, 2009. "Panel Data Models With Interactive Fixed Effects," Econometrica, Econometric Society, vol. 77(4), pages 1229-1279, 07.
  11. M. Hashem Pesaran, 2004. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," CESifo Working Paper Series 1331, CESifo Group Munich.
  12. Bai, Jushan & Ng, Serena, 2010. "Panel Unit Root Tests With Cross-Section Dependence: A Further Investigation," Econometric Theory, Cambridge University Press, vol. 26(04), pages 1088-1114, August.
  13. Su, Liangjun & Jin, Sainan, 2012. "Sieve estimation of panel data models with cross section dependence," Journal of Econometrics, Elsevier, vol. 169(1), pages 34-47.
  14. Donald Robertson & James Symons, 2000. "Factor Residuals in SUR Regressions: Estimating Panels Allowing for Cross Sectional Correlation," CEP Discussion Papers dp0473, Centre for Economic Performance, LSE.
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