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Estimation and inference in large heterogeneous panels with a multifactor error structure

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dc.creator Pesaran, Mohammad Hashem
dc.date 2004
dc.date.accessioned 2013-10-16T07:00:55Z
dc.date.available 2013-10-16T07:00:55Z
dc.date.issued 2013-10-16
dc.identifier http://hdl.handle.net/10419/18696
dc.identifier ppn:477413099
dc.identifier.uri http://koha.mediu.edu.my:8181/xmlui/handle/10419/18696
dc.description This paper presents a new approach to estimation and inference in panel data models with a multifactor error structure where the unobserved common factors are (possibly) correlated with exogenously given individual-specific regressors, and the factor loadings differ over the cross section units. The basic idea behind the proposed estimation procedure is to filter the individual-specific regressors by means of (weighted) cross-section aggregates such that asymptotically as the cross-section dimension (N) tends to infinity the differential effects of unobserved common factors are eliminated. The estimation procedure has the advantage that it can be computed by OLS applied to an auxiliary regression where the observed regressors are augmented by (weighted) cross sectional averages of the dependent variable and the individual specific regressors. Two different but related problems are addressed: one that concerns the coefficients of the individual-specific regressors, and the other that focusses on the mean of the individual coefficients assumed random. In both cases appropriate estimators, referred to as common correlated effects (CCE) estimators, are proposed and their asymptotic distribution as N tends to infinity, with T (the time-series dimension) fixed or as N and T tends to infinity (jointly) are derived under different regularity conditions. One important feature of the proposed CCE mean group (CCEMG) estimator is its invariance to the (unknown but fixed) number of unobserved common factors as N and T tends to infinity (jointly). The small sample properties of the various pooled estimators are investigated by Monte Carlo experiments that confirm the theoretical derivations and show that the pooled estimators have generally satisfactory small sample properties even for relatively small values of N and T.
dc.language eng
dc.relation CESifo working papers 1331
dc.rights http://www.econstor.eu/dspace/Nutzungsbedingungen
dc.subject C33
dc.subject C12
dc.subject C13
dc.subject ddc:330
dc.subject cross section dependence
dc.subject large panels
dc.subject common correlated effects
dc.subject heterogeneity
dc.subject estimation and inference
dc.subject Schätztheorie
dc.subject Inferenzstatistik
dc.subject Panel
dc.subject Theorie
dc.title Estimation and inference in large heterogeneous panels with a multifactor error structure
dc.type doc-type:workingPaper

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