This paper considers a factor-augmented regression model in the presence of structural change. We propose a two-step procedure to estimate the coefficients of explanatory variables. We show that when the number of units (N) and the number of periods (T) are large and comparable, the proposed...

In this paper we extend the semiparametric varying coefficient model to contain non-stationary I(1) and time trend as covariates. We show that the local constant kernel estimation method leads to a consistent estimation result. This is in contrast to the semiparametric varying coefficient model...