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...

Bai (2009) proposes a recursive least-squares estimation method for large panel data models with unobservable interactive fixed effects, but the impact of recursion on the asymptotic properties of the least-squares estimators is not taken into account. In this paper, we extend Bai (2009) by...