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

Author

Listed:
  • 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 .

Suggested Citation

  • Bin Peng & Giovanni Forchini, 2012. "Consistent Estimation of Panel Data Models with a Multi-factor Error Structure," School of Economics Discussion Papers 0112, School of Economics, University of Surrey.
    • Handle: RePEc:sur:surrec:0112
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    File URL: https://repec.som.surrey.ac.uk/2012/DP01-12.pdf
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    References listed on IDEAS

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