Feasible Generalized Least Squares for Panel Data with Cross-sectional and Serial Correlations

Jushan Bai, Sung Hoon Choi () and Yuan Liao

Papers from arXiv.org

Abstract: This paper considers generalized least squares (GLS) estimation for linear panel data models. By estimating the large error covariance matrix consistently, the proposed feasible GLS (FGLS) estimator is more efficient than the ordinary least squares (OLS) in the presence of heteroskedasticity, serial, and cross-sectional correlations. To take into account the serial correlations, we employ the banding method. To take into account the cross-sectional correlations, we suggest to use the thresholding method. We establish the limiting distribution of the proposed estimator. A Monte Carlo study is considered. The proposed method is applied to an empirical application.

Date: 2019-10, Revised 2020-08
New Economics Papers: this item is included in nep-ecm and nep-ore
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Citations: View citations in EconPapers (8)

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Journal Article: Feasible generalized least squares for panel data with cross-sectional and serial correlations (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1910.09004

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