IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

A Nonlinear Panel Data Model of Cross-Sectional Dependence

Listed author(s):
  • James Mitchell

    ()

  • George Kapetanios
  • Yongcheol Shin

This paper proposes a nonlinear panel data model which can generate endogenously both `weak' and `strong' cross-sectional dependence. The model's distinguishing characteristic is that a given agent's behaviour is influenced by an aggregation of the views or actions of those around them. The model allows for considerable flexibility in terms of the genesis of this herding or clustering type behaviour. At an econometric level, the model is shown to nest various extant dynamic panel data models. These include panel AR models, spatial models, which accommodate weak dependence only, and panel models where cross-sectional averages or factors exogenously generate strong, but not weak, cross sectional dependence. An important implication is that the appropriate model for the aggregate series becomes intrinsically nonlinear, due to the clustering behaviour, and thus requires the disaggregates to be simultaneously considered with the aggregate. We provide the associated asymptotic theory for estimation and inference. This is supplemented with Monte Carlo studies and two empirical applications which indicate the utility of our proposed model as both a structural and reduced form vehicle to model different types of cross-sectional dependence, including evolving clusters.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.le.ac.uk/economics/research/repec/lec/leecon/dp12-01.pdf
Download Restriction: no

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 12/01.

as
in new window

Length:
Date of creation: Jan 2012
Handle: RePEc:lec:leecon:12/01
Contact details of provider: Postal:
Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK

Phone: +44 (0)116 252 2887
Fax: +44 (0)116 252 2908
Web page: http://www2.le.ac.uk/departments/economics
Email:


More information through EDIRC

Order Information: Web: http://www2.le.ac.uk/departments/economics/research/discussion-papers Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Offer Lieberman, 2012. "A similarity‐based approach to time‐varying coefficient non‐stationary autoregression," Journal of Time Series Analysis, Wiley Blackwell, vol. 33(3), pages 484-502, 05.
  2. David Hirshleifer & Siew Hong Teoh, 2003. "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis," European Financial Management, European Financial Management Association, vol. 9(1), pages 25-66.
  3. Anonymous, 2000. "Microeconomic Reform and the Environment," Conference/Workshop Proceedings 31908, Productivity Commission.
  4. anonymous, 2000. "Reviewing economic development needs," Banking and Community Perspectives, Federal Reserve Bank of Dallas, issue 2, pages 6-7.
  5. Gabrielle Gayer & Itzhak Gilboa & Offer Lieberman, 2004. "Rule-Based and Case-Based Reasoning in Housing Prices," Cowles Foundation Discussion Papers 1493, Cowles Foundation for Research in Economics, Yale University.
  6. M. Hashem Pesaran, 2004. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," CESifo Working Paper Series 1331, CESifo Group Munich.
  7. anonymous, 2000. "Strengthening the emerging market economies," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 44(Jun), pages 228-231.
  8. N/A, 2000. "Section I. Recent economic developments," National Institute Economic Review, National Institute of Economic and Social Research, vol. 174(1), pages 30-37, October.
  9. Chevillon, Guillaume & Massmann, Michael & Mavroeidis, Sophocles, 2010. "Inference in models with adaptive learning," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 341-351, April.
  10. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January.
  11. N/A, 2000. "The world economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 174(1), pages 3-3, October.
  12. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
  13. -, 2000. "Evolución de la economía brasileña," Informe Estadístico – Oficina de la CEPAL en Brasilia 27987, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  14. Devenow, Andrea & Welch, Ivo, 1996. "Rational herding in financial economics," European Economic Review, Elsevier, vol. 40(3-5), pages 603-615, April.
  15. ., 2000. "Inflation and economic performance," Chapters, in: Macroeconomic Instability and Coordination, chapter 8 Edward Elgar Publishing.
  16. Guidolin, Massimo & Hyde, Stuart & McMillan, David & Ono, Sadayuki, 2009. "Non-linear predictability in stock and bond returns: When and where is it exploitable?," International Journal of Forecasting, Elsevier, vol. 25(2), pages 373-399.
  17. Anonymous, 2000. "Agricultural Economics Volumes 1-22, 1986-2000," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 23(2), August.
  18. Snehal Banerjee & Ilan Kremer, 2010. "Disagreement and Learning: Dynamic Patterns of Trade," Journal of Finance, American Finance Association, vol. 65(4), pages 1269-1302, 08.
  19. Chudik , A. & Pesaran, M.H., 2007. "Infinite Dimensional VARs and Factor Models," Cambridge Working Papers in Economics 0757, Faculty of Economics, University of Cambridge.
  20. -, 2000. "Evolución de la economía brasileña," Informe Estadístico – Oficina de la CEPAL en Brasilia 27992, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  21. Trueman, Brett, 1994. "Analyst Forecasts and Herding Behavior," Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 97-124.
  22. Chudik, Alexander & Pesaran, Hashem & Tosetti, Elisa, 2009. "Weak and strong cross section dependence and estimation of large panels," Working Paper Series 1100, European Central Bank.
  23. -, 2000. "Global economic developments, 1999," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 27471, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  24. -, 2000. "Evolución de la economía brasileña," Informe Estadístico – Oficina de la CEPAL en Brasilia 27990, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  25. Snehal Banerjee & Ron Kaniel & Ilan Kremer, 2009. "Price Drift as an Outcome of Differences in Higher-Order Beliefs," Review of Financial Studies, Society for Financial Studies, vol. 22(9), pages 3707-3734, September.
  26. Souleles, Nicholas S, 2004. "Expectations, Heterogeneous Forecast Errors, and Consumption: Micro Evidence from the Michigan Consumer Sentiment Surveys," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(1), pages 39-72, February.
  27. N/A, 2000. "At a Glance ... The UK economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 173(1), pages 2-2, July.
  28. Christopher D. Carroll, 2003. "Macroeconomic Expectations of Households and Professional Forecasters," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 269-298.
  29. -, 2000. "Evolución de la economía brasileña," Informe Estadístico – Oficina de la CEPAL en Brasilia 27984, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  30. Gonzalo, Jesus & Wolf, Michael, 2005. "Subsampling inference in threshold autoregressive models," Journal of Econometrics, Elsevier, vol. 127(2), pages 201-224, August.
  31. anonymous, 2000. "Western economic developments," Western economic developments, Federal Reserve Bank of San Francisco, issue Nov.
  32. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
  33. Kapetanios, George, 2010. "A Testing Procedure for Determining the Number of Factors in Approximate Factor Models With Large Datasets," Journal of Business & Economic Statistics, American Statistical Association, vol. 28(3), pages 397-409.
  34. repec:ecr:col114:28022 is not listed on IDEAS
  35. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
  36. Yu, Ping, 2012. "Likelihood estimation and inference in threshold regression," Journal of Econometrics, Elsevier, vol. 167(1), pages 274-294.
  37. Tweedie, Richard L., 1975. "Sufficient conditions for ergodicity and recurrence of Markov chains on a general state space," Stochastic Processes and their Applications, Elsevier, vol. 3(4), pages 385-403, October.
  38. anonymous, 2000. "Western economic developments," Western economic developments, Federal Reserve Bank of San Francisco, issue Jun.
  39. Narasimhan Jegadeesh & Woojin Kim, 2010. "Do Analysts Herd? An Analysis of Recommendations and Market Reactions," Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 901-937, February.
  40. Itzhak Gilboa & David Schmeidler & Offer Lieberman, 2006. "Empirical Similarity," Post-Print hal-00746558, HAL.
  41. Roger E. A. Farmer, 2009. "Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism," The Economic Record, The Economic Society of Australia, vol. 85(270), pages 357-358, 09.
  42. -, 2000. "Economic survey of Canada, 1999," Oficina de la CEPAL en Washington (Estudios e Investigaciones) 28797, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  43. anonymous, 2000. "Western economic developments," Western economic developments, Federal Reserve Bank of San Francisco, issue Mar.
  44. ., 2000. "Ideology and analysis in macroeconomics," Chapters, in: Macroeconomic Instability and Coordination, chapter 18 Edward Elgar Publishing.
  45. Marjolein C.J. Caniëls, 2000. "Knowledge Spillovers and Economic Growth," Books, Edward Elgar Publishing, number 1936.
  46. Timmermann, Allan, 1994. "Can Agents Learn to Form Rational Expectations? Some Results on Convergence and Stability of Learning in the UK Stock Market," Economic Journal, Royal Economic Society, vol. 104(425), pages 777-797, July.
  47. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 147-162, April.
  48. Jushan Bai & Serena Ng, 2000. "Determining the Number of Factors in Approximate Factor Models," Boston College Working Papers in Economics 440, Boston College Department of Economics.
  49. anonymous, 2000. "Western economic developments," Western economic developments, Federal Reserve Bank of San Francisco, issue Sep.
  50. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
  51. N/A, 2000. "The world economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 173(1), pages 3-3, July.
  52. N/A, 2000. "The world economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 172(1), pages 3-3, April.
  53. anonymous, 2000. "Western economic developments," Western economic developments, Federal Reserve Bank of San Francisco, issue Aug.
  54. -, 2000. "Meeting held on engendering macroeconomic policy," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 2, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  55. Gregory, Allan W & Smith, Gregor W & Yetman, James, 2001. "Testing for Forecast Consensus," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 34-43, January.
  56. anonymous, 2000. "Western economic developments," Western economic developments, Federal Reserve Bank of San Francisco, issue Feb.
  57. Lieberman, Offer, 2010. "Asymptotic Theory For Empirical Similarity Models," Econometric Theory, Cambridge University Press, vol. 26(04), pages 1032-1059, August.
  58. Itzhak Gilboa & O. Lieberman & David Schmeidler, 2011. "A similarity-based approach to prediction," Post-Print hal-00609179, HAL.
  59. -, 2000. "Evolución de la economía brasileña," Informe Estadístico – Oficina de la CEPAL en Brasilia 27985, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  60. Richard W. Sias, 2004. "Institutional Herding," Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 165-206.
  61. -, 2000. "Economic survey of United States, 1999," Oficina de la CEPAL en Washington (Estudios e Investigaciones) 28796, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  62. -, 2000. "Evolución de la economía brasileña," Informe Estadístico – Oficina de la CEPAL en Brasilia 27991, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  63. Kapetanios, G., 1999. "Model Selection in Threshold Models," Cambridge Working Papers in Economics 9906, Faculty of Economics, University of Cambridge.
  64. Korniotis, George M., 2010. "Estimating Panel Models With Internal and External Habit Formation," Journal of Business & Economic Statistics, American Statistical Association, vol. 28(1), pages 145-158.
  65. -, 2000. "Evolución de la economía brasileña," Informe Estadístico – Oficina de la CEPAL en Brasilia 27988, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  66. -, 2000. "Evolución de la economía brasileña," Informe Estadístico – Oficina de la CEPAL en Brasilia 27983, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  67. anonymous, 2000. "Western economic developments," Western economic developments, Federal Reserve Bank of San Francisco, issue May.
  68. anonymous, 2000. "Twelfth District economic update," Western economic developments, Federal Reserve Bank of San Francisco, issue Dec, pages 1-5.
  69. N/A, 2000. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 173(1), pages 43-65, July.
  70. -, 2000. "Evolución de la economía brasileña," Informe Estadístico – Oficina de la CEPAL en Brasilia 27986, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:lec:leecon:12/01. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mrs. Alexandra Mazzuoccolo)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.