On CCE estimation of factor-augmented models when regressors are not linear in the factors
(2019) In Economics Letters 178. p.5-7- Abstract
- In empirical research it is often of interest to include non-linear functions of the explanatory variables, such as squares or interactions, in the specification. A popular technique to estimate such models in the presence of common factors is the Common Correlated Effects (CCE) methodology. However, this approach assumes that the regressors are linear in the factors, which is not the case if variables enter non-linearly. In this note we show how CCE should be implemented when some regressors violate the linear factor model assumption.
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/4a5d8642-8b01-44b1-8109-fcbdc12da1e0
- author
- De Vos, Ignace LU and Westerlund, Joakim LU
- organization
- publishing date
- 2019-05
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- CCE, Non-linear regressors, Factor-augmented regression models
- in
- Economics Letters
- volume
- 178
- pages
- 3 pages
- publisher
- Elsevier
- external identifiers
-
- scopus:85061819618
- ISSN
- 0165-1765
- DOI
- 10.1016/j.econlet.2019.02.001
- language
- English
- LU publication?
- yes
- id
- 4a5d8642-8b01-44b1-8109-fcbdc12da1e0
- date added to LUP
- 2019-02-24 19:16:01
- date last changed
- 2022-04-02 06:48:03
@article{4a5d8642-8b01-44b1-8109-fcbdc12da1e0, abstract = {{In empirical research it is often of interest to include non-linear functions of the explanatory variables, such as squares or interactions, in the specification. A popular technique to estimate such models in the presence of common factors is the Common Correlated Effects (CCE) methodology. However, this approach assumes that the regressors are linear in the factors, which is not the case if variables enter non-linearly. In this note we show how CCE should be implemented when some regressors violate the linear factor model assumption.}}, author = {{De Vos, Ignace and Westerlund, Joakim}}, issn = {{0165-1765}}, keywords = {{CCE; Non-linear regressors; Factor-augmented regression models}}, language = {{eng}}, pages = {{5--7}}, publisher = {{Elsevier}}, series = {{Economics Letters}}, title = {{On CCE estimation of factor-augmented models when regressors are not linear in the factors}}, url = {{http://dx.doi.org/10.1016/j.econlet.2019.02.001}}, doi = {{10.1016/j.econlet.2019.02.001}}, volume = {{178}}, year = {{2019}}, }