Skip to main content

Lund University Publications

LUND UNIVERSITY LIBRARIES

On CCE estimation of factor-augmented models when regressors are not linear in the factors

De Vos, Ignace LU and Westerlund, Joakim LU (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:
author
and
organization
publishing date
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}},
}