This paper studies the effects of common shocks on the OLS estimators of the slopes' parameters in linear panel data models. The shocks are assumed to affect both the errors and some of the explanatory variables. In contrast to existing approaches, which rely on using results on martingale...

The properties of the two stage least squares (TSLS) and limited information maximum likelihood (LIML) estimators in panel data models where the observables are affected by common shocks, modelled through unobservable factors, are studied for the case where the time series dimension is fixed. We...