On Estimation and Inference in Heterogeneous Panel Regressions with Interactive Effects

Joakim Westerlund

Journal of Time Series Analysis, 2019, vol. 40, issue 5, 852-857

Abstract: Among the existing estimators of interactive effects (IEs) regressions, the common correlated effects (CCE) approach is probably the most popular. A major reason for this popularity is the generality of the approach. In fact, CCE is remarkably general in that it allows ample parameter heterogeneity without placing any restrictions on the true number of common factors. In the present paper, we show that this generality is not unique to CCE but that it is shared by a whole class of estimators. We characterize this class and show that it does not rely on the correct specification of the IEs. In spite of this, the estimators within the class are consistent and asymptotically normal under general conditions. This means that there is not just CCE but, in fact, many estimators to choose from, such as the fixed effects estimator.

Date: 2019
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