Interactive Effects Panel Data Models with General Factors and Regressors
(2023) In Econometric Theory- Abstract
- This paper considers a model with general regressors and unobservable common factors. An estimator based on iterated principal component analysis is proposed, which is shown to be not only asymptotically normal, but under certain conditions also free of the otherwise so common asymptotic incidental parameters bias. Interestingly, the conditions required to achieve unbiasedness become weaker the stronger the trends in the factors, and if the trending is strong enough, unbiasedness comes at no cost at all. The approach does not require any knowledge of how many factors there are, or whether they are deterministic or stochastic. The order of integration of the factors is also treated as unknown, as is the order of integration of the... (More)
- This paper considers a model with general regressors and unobservable common factors. An estimator based on iterated principal component analysis is proposed, which is shown to be not only asymptotically normal, but under certain conditions also free of the otherwise so common asymptotic incidental parameters bias. Interestingly, the conditions required to achieve unbiasedness become weaker the stronger the trends in the factors, and if the trending is strong enough, unbiasedness comes at no cost at all. The approach does not require any knowledge of how many factors there are, or whether they are deterministic or stochastic. The order of integration of the factors is also treated as unknown, as is the order of integration of the regressors, which means that there is no need to pre-test for unit roots, or to decide on which deterministic terms to include in the model. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/ce89a26b-0538-4a9c-8f96-5a52e8f0e35a
- author
- Westerlund, Joakim LU ; Su, Liangjun ; Peng, Bin and Yang, Yanrong
- organization
- publishing date
- 2023
- type
- Contribution to journal
- publication status
- epub
- subject
- in
- Econometric Theory
- publisher
- Cambridge University Press
- external identifiers
-
- scopus:85170658733
- ISSN
- 1469-4360
- DOI
- 10.1017/S0266466623000270
- language
- English
- LU publication?
- yes
- id
- ce89a26b-0538-4a9c-8f96-5a52e8f0e35a
- date added to LUP
- 2023-07-31 17:47:01
- date last changed
- 2023-12-28 08:25:14
@article{ce89a26b-0538-4a9c-8f96-5a52e8f0e35a,
abstract = {{This paper considers a model with general regressors and unobservable common factors. An estimator based on iterated principal component analysis is proposed, which is shown to be not only asymptotically normal, but under certain conditions also free of the otherwise so common asymptotic incidental parameters bias. Interestingly, the conditions required to achieve unbiasedness become weaker the stronger the trends in the factors, and if the trending is strong enough, unbiasedness comes at no cost at all. The approach does not require any knowledge of how many factors there are, or whether they are deterministic or stochastic. The order of integration of the factors is also treated as unknown, as is the order of integration of the regressors, which means that there is no need to pre-test for unit roots, or to decide on which deterministic terms to include in the model.}},
author = {{Westerlund, Joakim and Su, Liangjun and Peng, Bin and Yang, Yanrong}},
issn = {{1469-4360}},
language = {{eng}},
publisher = {{Cambridge University Press}},
series = {{Econometric Theory}},
title = {{Interactive Effects Panel Data Models with General Factors and Regressors}},
url = {{http://dx.doi.org/10.1017/S0266466623000270}},
doi = {{10.1017/S0266466623000270}},
year = {{2023}},
}