A Linear Estimator for FactorAugmented Fixed-T Panels with Endogenous Regressors

Arturas Juodis () and Vasilis Sarafidis

No 5/20, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: A novel method-of-moments approach is proposed for the estimation of factor-augmented panel data models with endogenous regressors when T is fixed. The underlying methodology involves approximating the unobserved common factors using observed factor proxies. The resulting moment conditions are linear in the parameters. The proposed approach addresses several issues which arise with existing nonlinear estimators that are available in fixed T panels, such as local minima-related problems, a sensitivity to particular normalisation schemes, and a potential lack of global identification. We apply our approach to a large panel of households and estimate the price elasticity of urban water demand. A simulation study confirms that our approach performs well in finite samples.

Keywords: panel data; common factors; fixed T consistency; moment conditions; urban water management (search for similar items in EconPapers)
JEL-codes: C13 C15 C23 (search for similar items in EconPapers)
Pages: 78
Date: 2020
New Economics Papers: this item is included in nep-ecm and nep-ore
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Citations: View citations in EconPapers (19)

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Journal Article: A Linear Estimator for Factor-Augmented Fixed-T Panels With Endogenous Regressors (2022)
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