Consistent Estimation of Panel Data Models with a Multi-factor Error Structure

Bin Peng and Giovanni Forchini
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Bin Peng: Monash University

No 112, School of Economics Discussion Papers from School of Economics, University of Surrey

Abstract: This paper considers the panel data model with a multifactor structure in both the errors and the regressors which was studied by Pesaran (“Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure, Econometrica, 2006). Estimators are proposed that are consistent for fixed T as N tends to infinity. By allowing T to be fixed some of the assumptions imposed by Pesaran are relaxed and, at the same time, some of the complexities of the large N and T asymptotics are bypassed. A small Monte Carlo simulation shows that these new estimators are very accurate for very small values of T .

Pages: 40 pages
Date: 2012-02
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Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:0112

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