On the estimation and inference in factor-augmented panel regressions with correlated loadings

In an influential paper, Pesaran [Pesaran, M.H. (2006). Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica 74, 967–1012] proposes a very simple estimator of factor-augmented regressions that has since then become very popular. In this note we demonstrate how the presence of correlated factor loadings can render this estimator inconsistent.

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Year of publication:	2013
Authors:	Westerlund, Joakim ; Urbain, Jean-Pierre
Published in:	Economics Letters. - Elsevier, ISSN 0165-1765. - Vol. 119.2013, 3, p. 247-250
Publisher:	Elsevier
Subject:	Factor-augmented panel regressions \| Common factor models \| Cross-sectional averages \| Cross-sectional dependence

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Type of publication:	Article
Classification:	C12 - Hypothesis Testing ; C13 - Estimation ; C33 - Models with Panel Data
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011041647