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Linear regression for panel with unknown number of factors as interactive fixed effects

  • Hyungsik Roger Moon

    (Institute for Fiscal Studies)

  • Martin Weidner

    ()

    (Institute for Fiscal Studies and cemmap and UCL)

In this paper we study the least squares (LS) estimator in a linear panel regression model with interactive fixed effects for asymptotics where both the number of time periods and the number of cross-sectional units go to infinity. Under appropriate assumptions we show that the limiting distribution of the LS estimator for the regression coefficients is independent of the number of interactive fixed effects used in the estimation, as long as this number does not fall below the true number of interactive fixed effects present in the data. The important practical implication of this result is that for inference on the regression coefficients one does not necessarily need to estimate the number of interactive effects consistently, but can rely on an upper bound of this number to calculate the LS estimator. Supplementary material for this paper is available here.

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File URL: http://www.cemmap.ac.uk/wps/cwp491313.pdf
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Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP49/13.

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Date of creation: Oct 2013
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Handle: RePEc:ifs:cemmap:49/13
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  1. Geert Dhaene & Koen Jochmans, 2015. "Split-panel Jackknife Estimation of Fixed-effect Models," Review of Economic Studies, Oxford University Press, vol. 82(3), pages 991-1030.
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  11. Hyungsik Roger Moon & Martin Weidner, 2014. "Dynamic linear panel regression models with interactive fixed effects," CeMMAP working papers CWP47/14, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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  16. Dukpa Kim & Tatsushi Oka, 2014. "Divorce Law Reforms And Divorce Rates In The Usa: An Interactive Fixed‐Effects Approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(2), pages 231-245, 03.
  17. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
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  25. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09ij4j0h0h1 is not listed on IDEAS
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