Interactive Effects Panel Data Models with General Factors and Regressors

Bin Peng (), Liangjun Su (), Joakim Westerlund and Yanrong Yang ()

No 23/21, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: This paper considers a model with general regressors and unobservable factors. An estimator based on iterated principal components is proposed, which is shown to be not only asymptotically normal and oracle efficient, but under certain conditions also 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. In particular, 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 pre-test for unit roots, or to decide on which deterministic terms to include in the model.

Keywords: panel data; non-stationarity; principal components; interactive effects (search for similar items in EconPapers)
JEL-codes: C14 C23 C51 (search for similar items in EconPapers)
Pages: 76
Date: 2021
New Economics Papers: this item is included in nep-ore
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Interactive-effects panel-data models with general factors and regressors (2023)
Working Paper: Interactive Effects Panel Data Models with General Factors and Regressors (2021)
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