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Uniform Theory for CCE under Heterogeneous Slopes and General Unknown Factors

Stauskas, Ovidijus LU (2021) In Working Papers
Abstract
A recent study proposed by Westerlund (CCE in Panels with General Unknown Factors, Econometrics Journal, 21, 264-276, 2018) showed that a very popular Common Correlated Effects (CCE) estimator is significantly more applicable than it was thought before. Contrary to the usual stationarity assumption, common factors can in fact be much more general and not unit root only. This also helps to alleviate the uncertainty over deterministic model components since they can be treated as unknown, similarly to unobserved stochastic factors. While very promising, these theoretical results concern only the pooled (CCEP) version of the estimator for the homogeneous parameters, which does no take heterogeneous effects into account. Therefore, it is... (More)
A recent study proposed by Westerlund (CCE in Panels with General Unknown Factors, Econometrics Journal, 21, 264-276, 2018) showed that a very popular Common Correlated Effects (CCE) estimator is significantly more applicable than it was thought before. Contrary to the usual stationarity assumption, common factors can in fact be much more general and not unit root only. This also helps to alleviate the uncertainty over deterministic model components since they can be treated as unknown, similarly to unobserved stochastic factors. While very promising, these theoretical results concern only the pooled (CCEP) version of the estimator for the homogeneous parameters, which does no take heterogeneous effects into account. Therefore, it is natural to generalize these findings to the case of unit-specific slopes. It is especially interesting, because many previous studies on heterogeneous slopes did not rigorously account for the usual situation when the factors are proxied by more explanatory variables than needed. As a result, the current setup introduces more uniformity to the CCE theory. We demonstrate that save for some regularity conditions, CCEP and the mean group (CCEMG) estimators are asymptotically normal and unbiased under heterogeneous slopes and general unknown factors. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Working paper/Preprint
publication status
published
subject
keywords
Panel data, CCE, Non-Stationarity, Factors, Heterogeneity, C12, C23, C33
in
Working Papers
issue
2021:9
pages
18 pages
language
English
LU publication?
yes
id
47d338d0-303a-4628-8e33-0951065acc97
date added to LUP
2021-05-19 16:38:46
date last changed
2024-03-14 13:21:44
@misc{47d338d0-303a-4628-8e33-0951065acc97,
  abstract     = {{A recent study proposed by Westerlund (CCE in Panels with General Unknown Factors, Econometrics Journal, 21, 264-276, 2018) showed that a very popular Common Correlated Effects (CCE) estimator is significantly more applicable than it was thought before. Contrary to the usual stationarity assumption, common factors can in fact be much more general and not unit root only. This also helps to alleviate the uncertainty over deterministic model components since they can be treated as unknown, similarly to unobserved stochastic factors. While very promising, these theoretical results concern only the pooled (CCEP) version of the estimator for the homogeneous parameters, which does no take heterogeneous effects into account. Therefore, it is natural to generalize these findings to the case of unit-specific slopes. It is especially interesting, because many previous studies on heterogeneous slopes did not rigorously account for the usual situation when the factors are proxied by more explanatory variables than needed. As a result, the current setup introduces more uniformity to the CCE theory. We demonstrate that save for some regularity conditions, CCEP and the mean group (CCEMG) estimators are asymptotically normal and unbiased under heterogeneous slopes and general unknown factors.}},
  author       = {{Stauskas, Ovidijus}},
  keywords     = {{Panel data; CCE; Non-Stationarity; Factors; Heterogeneity; C12; C23; C33}},
  language     = {{eng}},
  note         = {{Working Paper}},
  number       = {{2021:9}},
  series       = {{Working Papers}},
  title        = {{Uniform Theory for CCE under Heterogeneous Slopes and General Unknown Factors}},
  url          = {{https://lup.lub.lu.se/search/files/177102596/WP21_9.pdf}},
  year         = {{2021}},
}