A panel data model with interactive effects characterized by multilevel non-parallel factors

Jiaolong Li and Zhiqin Yang

Applied Economics Letters, 2018, vol. 25, issue 10, 707-712

Abstract: Current research only considers parallel factors in factor models. In this article, we provide an algorithm based on cross principal component analysis that identifies and estimates a panel data model with interactive effects characterized by multilevel and non-parallel factors. The simulation results show that our estimator is consistent, converges quickly and outperforms other estimators that identify the factor structure incorrectly.

Date: 2018
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DOI: 10.1080/13504851.2017.1358442

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