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Sieve estimation of panel data models with cross section dependence

Liangjun Su and Sainan Jin

Journal of Econometrics, 2012, vol. 169, issue 1, 34-47

Abstract: In this paper we consider the problem of estimating semiparametric panel data models with cross section dependence, where the individual-specific regressors enter the model nonparametrically whereas the common factors enter the model linearly. We consider both heterogeneous and homogeneous regression relationships when both the time and cross-section dimensions are large. We propose sieve estimators for the nonparametric regression functions by extending Pesaran’s (2006) common correlated effect (CCE) estimator to our semiparametric framework. Asymptotic normal distributions for the proposed estimators are derived and asymptotic variance estimators are provided. Monte Carlo simulations indicate that our estimators perform well in finite samples.

Keywords: Common factor; Cross-section dependence; Heterogeneous regression; Panel data; Sieve estimation (search for similar items in EconPapers)
JEL-codes: C13 C14 C33 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:169:y:2012:i:1:p:34-47

DOI: 10.1016/j.jeconom.2012.01.006

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Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

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