Skip to main content

Lund University Publications

LUND UNIVERSITY LIBRARIES

The factor analytical approach in trending near unit root panels

Westerlund, Joakim LU ; Norkutė, Milda and Stauskas, Ovidijus LU (2022) In Journal of Time Series Analysis 43(3). p.501-508
Abstract

In this study, we revisit the factor analytical (FA) approach for (near unit root) dynamic panel data models, whose asymptotic distribution has been shown to be normal and well centered at zero without the need for valid instruments or correction for bias. It is therefore very appealing. The question is: Does the appeal of FA, which so far has only been documented for fixed effects panels, extends to panels with incidental trends? This is an important question, because many persistent variables are trending. The answer turns out to be negative. In particular, while consistent, the asymptotic normality of FA breaks down when there is an exact unit root present, which limits its applicability.

Please use this url to cite or link to this publication:
author
; and
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Factor analytical method, Hessian, incidental trends, near unit root, panel
in
Journal of Time Series Analysis
volume
43
issue
3
pages
501 - 508
publisher
Wiley-Blackwell
external identifiers
  • scopus:85115115640
ISSN
0143-9782
DOI
10.1111/jtsa.12624
language
English
LU publication?
yes
id
0e7c050a-cda6-455b-91f3-e17d881d2ba2
date added to LUP
2021-10-05 10:44:08
date last changed
2022-06-30 08:16:44
@misc{0e7c050a-cda6-455b-91f3-e17d881d2ba2,
  abstract     = {{<p>In this study, we revisit the factor analytical (FA) approach for (near unit root) dynamic panel data models, whose asymptotic distribution has been shown to be normal and well centered at zero without the need for valid instruments or correction for bias. It is therefore very appealing. The question is: Does the appeal of FA, which so far has only been documented for fixed effects panels, extends to panels with incidental trends? This is an important question, because many persistent variables are trending. The answer turns out to be negative. In particular, while consistent, the asymptotic normality of FA breaks down when there is an exact unit root present, which limits its applicability.</p>}},
  author       = {{Westerlund, Joakim and Norkutė, Milda and Stauskas, Ovidijus}},
  issn         = {{0143-9782}},
  keywords     = {{Factor analytical method; Hessian; incidental trends; near unit root; panel}},
  language     = {{eng}},
  number       = {{3}},
  pages        = {{501--508}},
  publisher    = {{Wiley-Blackwell}},
  series       = {{Journal of Time Series Analysis}},
  title        = {{The factor analytical approach in trending near unit root panels}},
  url          = {{http://dx.doi.org/10.1111/jtsa.12624}},
  doi          = {{10.1111/jtsa.12624}},
  volume       = {{43}},
  year         = {{2022}},
}