Interactive-effects panel-data models with general factors and regressors

Bin Ping, Liangju Su, Yanrong Yang and Joakim Westerlund
Additional contact information
Bin Ping: Monash University
Liangju Su: Tsinghua University
Yanrong Yang: Australian National University

French Stata Users' Group Meetings 2023 from Stata Users Group

Abstract: This presentation considers a model with general regressors and unobservable common factors. An estimator based on iterated principal component analysis is proposed, which is shown to be not only asymptotically normal but also under certain conditions free of the otherwise so common asymptotic incidental parameters bias. Interestingly, the conditions required to achieve unbiasedness become weaker the stronger the trends in the factors, and if the trending is strong enough, unbiasedness comes at no cost at all. The approach does not require any knowledge of how many factors there are or whether they are deterministic or stochastic. The order of integration of the factors is also treated as unknown, as is the order of integration of the regressors, which means that there is no need to pretest for unit roots or to decide on which deterministic terms to include in the model.

Date: 2023-08-11
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http://repec.org/frsug2023/France23_Westerlund.pdf presentation materials (application/pdf)

Related works:
Working Paper: Interactive Effects Panel Data Models with General Factors and Regressors (2021)
Working Paper: Interactive Effects Panel Data Models with General Factors and Regressors (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:fsug23:14

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