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Mean group estimation in presence of weakly cross-correlated estimators

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  • Chudik, Alexander
  • Pesaran, M. Hashem

Abstract

This paper extends the mean group (MG) estimator for random coefficient panel data models by allowing the underlying individual estimators to be weakly cross correlated. This can arise, for example, in panels with spatially correlated errors. We establish that the MG estimator is asymptotically correctly centered, and its asymptotic covariance matrix can be consistently estimated. In contrast with the homogeneous case, the random coefficient specification allows for correct inference even when nothing is known about the weak cross-sectional dependence of the errors.

Suggested Citation

  • Chudik, Alexander & Pesaran, M. Hashem, 2019. "Mean group estimation in presence of weakly cross-correlated estimators," Economics Letters, Elsevier, vol. 175(C), pages 101-105.
    • Handle: RePEc:eee:ecolet:v:175:y:2019:i:c:p:101-105
    DOI: 10.1016/j.econlet.2018.12.036
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    References listed on IDEAS

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    1. Alexander Chudik & M. Hashem Pesaran & Jui‐Chung Yang, 2018. "Half‐panel jackknife fixed‐effects estimation of linear panels with weakly exogenous regressors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(6), pages 816-836, September.
    2. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    3. Kelejian, Harry H. & Prucha, Ingmar R., 2007. "HAC estimation in a spatial framework," Journal of Econometrics, Elsevier, vol. 140(1), pages 131-154, September.
    4. Geert Dhaene & Koen Jochmans, 2015. "Split-panel Jackknife Estimation of Fixed-effect Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(3), pages 991-1030.
    5. Pesaran, M. Hashem & Tosetti, Elisa, 2011. "Large panels with common factors and spatial correlation," Journal of Econometrics, Elsevier, vol. 161(2), pages 182-202, April.
    6. Pesaran M.H. & Schuermann T. & Weiner S.M., 2004. "Modeling Regional Interdependencies Using a Global Error-Correcting Macroeconometric Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 129-162, April.
    7. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09ij4j0h0h1 is not listed on IDEAS
    8. Pesaran, M. Hashem, 2015. "Time Series and Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780198759980.
    9. repec:hal:journl:peer-00796743 is not listed on IDEAS
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    Cited by:

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    12. Daniel Fehrle, 2021. "Hedging Against Inflation: Housing vs. Equity," Discussion Paper Series 342, Universitaet Augsburg, Institute for Economics.
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    More about this item

    Keywords

    Mean group estimator; Cross sectional dependence; Spatial models; Panel data;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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