Estimation of factor-augmented panel regressions with weakly influential factors

Simon Reese and Joakim Westerlund

Econometric Reviews, 2018, vol. 37, issue 5, 401-465

Abstract: The use of factor-augmented panel regressions has become very popular in recent years. Existing methods for such regressions require that the common factors are strong, an assumption that is likely to be mistaken in practice. Motivated by this, the current article offers an analysis of the effect of weak, semi-weak, and semi-strong factors on two of the most popular estimators for factor-augmented regressions, namely, principal components (PC) and common correlated effects (CCE).

Date: 2018
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Working Paper: Estimation of Factor-Augmented Panel Regressions with Weakly Influential Factors (2014)
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DOI: 10.1080/07474938.2015.1106758

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