Cross-sectional averages versus principal components

Joakim Westerlund and Jean-Pierre Urbain

Journal of Econometrics, 2015, vol. 185, issue 2, 372-377

Abstract: In spite of the increased use of factor-augmented regressions in recent years, little is known regarding the relative merits of the two main approaches to estimation and inference, namely, the cross-sectional average and principal component estimators. By providing a formal comparison of the approaches, the current paper fills this gap in the literature.

Keywords: Factor-augmented panel regressions; Common factor models; Principal components; Cross-section averages; Cross-section dependence (search for similar items in EconPapers)
JEL-codes: C12 C13 C33 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (80)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:185:y:2015:i:2:p:372-377

DOI: 10.1016/j.jeconom.2014.09.014

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