Modified first-difference estimator in a panel data model with unobservable factors both in the errors and the regressors when the time dimension is small

Giovanni Forchini, Bin Peng

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Abstract

Panel data models with factor structures in both the errors and the regressors have received considerable attention recently. In these models, the errors and the regressors are correlated and the standard estimators are inconsistent. This paper shows that, for such models, a modified first-difference estimator (in which the time and the cross-sectional dimensions are interchanged) is consistent as the cross-sectional dimension grows but the time dimension is small. Although the estimator has a non standard asymptotic distribution, t and F tests have standard asymptotic distribution under the null hypothesis.

Original languageEnglish
Pages (from-to)12226-12239
Number of pages14
JournalCommunications in Statistics - Theory and Methods
Volume46
Issue number24
Early online date31 Aug 2017
DOIs
Publication statusPublished - 2017

Keywords

  • Common shocks
  • factors
  • panel data

ASJC Scopus subject areas

  • Statistics and Probability

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