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Asymptotics for Panel Models with Common Shocks

Author

Listed:
  • Chihwa Kao
  • Lorenzo Trapani
  • Giovanni Urga

Abstract

This article 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 a cointegration relationship or a spurious regression, and we also consider the stationary case. We derive the rate of convergence and the limit distributions for the ordinary least square (OLS) estimates of the model parameters under all the aforementioned cases.

Suggested Citation

  • Chihwa Kao & Lorenzo Trapani & Giovanni Urga, 2012. "Asymptotics for Panel Models with Common Shocks," Econometric Reviews, Taylor & Francis Journals, vol. 31(4), pages 390-439.
    • Handle: RePEc:taf:emetrv:v:31:y:2012:i:4:p:390-439
    DOI: 10.1080/07474938.2011.607991
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    Cited by:

    1. Gregory Connor & Robert A Korajczyk, 2024. "Semi-Strong Factors in Asset Returns," Journal of Financial Econometrics, Oxford University Press, vol. 22(1), pages 70-93.
    2. repec:rza:wpaper:067 is not listed on IDEAS
    3. Bittencourt, Manoel, 2011. "Inflation and financial development: Evidence from Brazil," Economic Modelling, Elsevier, vol. 28(1), pages 91-99.
    4. Shahnaz Parsaeian, 2024. "Stein-like Common Correlated Effects Estimation Under Structural Breaks," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202409, University of Kansas, Department of Economics.
    5. Shahnaz Parsaeian, 2024. "Stein-like Common Correlated Effects Estimation under Structural Breaks," Econometrics, MDPI, vol. 12(2), pages 1-23, April.
    6. Arturas Juodis & Simon Reese, 2018. "The Incidental Parameters Problem in Testing for Remaining Cross-section Correlation," Papers 1810.03715, arXiv.org, revised Feb 2021.
    7. Chihwa Kao & Lorenzo Trapani & Giovanni Urga, 2012. "Testing for Breaks in Cointegrated Panels," Center for Policy Research Working Papers 135, Center for Policy Research, Maxwell School, Syracuse University.
    8. 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.
    9. Jaromír Antoch & Jan Hanousek & Lajos Horváth & Marie Hušková & Shixuan Wang, 2019. "Structural breaks in panel data: Large number of panels and short length time series," Econometric Reviews, Taylor & Francis Journals, vol. 38(7), pages 828-855, August.
    10. Anindya Banerjee & Josep Lluís Carrion-i-Silvestre, 2017. "Testing for Panel Cointegration Using Common Correlated Effects Estimators," Journal of Time Series Analysis, Wiley Blackwell, vol. 38(4), pages 610-636, July.
    11. Trapani, Lorenzo, 2013. "On bootstrapping panel factor series," Journal of Econometrics, Elsevier, vol. 172(1), pages 127-141.
    12. In Choi, 2012. "Panel Cointegration," Working Papers 1208, Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy).
    13. Godwin Olasehinde-Williams & Festus Victor Bekun, 2024. "Do Fiscal Policy Outcomes Promote Ethno-Religious Stability in African States?," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(4), pages 16013-16037, December.
    14. G. Forchini & Bin Jiang & Bin Peng, 2015. "Common Shocks in panels with Endogenous Regressors," Monash Econometrics and Business Statistics Working Papers 8/15, Monash University, Department of Econometrics and Business Statistics.
    15. Jaromír Antoch & Jan Hanousek & Marie Hušková & Jiří Trešl, 2019. "Detekce změn v panelových datech: Změna parametrů Fama-French modelu u vybraných evropských akcií v období finanční krize [Detection of Changes in Panel Data: Change in Fama-French Model Parameters for Selected European Stocks During the Financial," Politická ekonomie, Prague University of Economics and Business, vol. 2019(1), pages 3-19.
    16. Giovanni Forchini & Bin Peng, 2016. "A Conditional Approach to Panel Data Models with Common Shocks," Econometrics, MDPI, vol. 4(1), pages 1-12, January.
    17. Chihwa Kao & Lorenzo Trapani & Giovanni Urga, 2007. "Modelling and Testing for Structural Changes in Panel Cointegration Models with Common and Idiosyncratic Stochastic Trends," Working Papers 0708, Department of Management, Information and Production Engineering, University of Bergamo.

    More about this item

    JEL classification:

    • 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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