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Nonparametric Estimation in Large Panels with Cross-Sectional Dependence

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  • Xiao Huang

Abstract

In this paper we consider nonparametric estimation in panel data under cross-sectional dependence. Both the number of cross-sectional units (N) and the time dimension of the panel (T) are assumed to be large, and the cross-sectional dependence has a multifactor structure. Local linear regression is used to filter the unobserved cross-sectional factors and to estimate the nonparametric conditional mean. A Monte Carlo simulation study shows that the proposed estimator yields good finite sample properties.

Suggested Citation

  • Xiao Huang, 2013. "Nonparametric Estimation in Large Panels with Cross-Sectional Dependence," Econometric Reviews, Taylor & Francis Journals, vol. 32(5-6), pages 754-777, August.
    • Handle: RePEc:taf:emetrv:v:32:y:2013:i:5-6:p:754-777
    DOI: 10.1080/07474938.2013.740998
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    References listed on IDEAS

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    1. Xiao Huang, 2008. "Panel vector autoregression under cross-sectional dependence," Econometrics Journal, Royal Economic Society, vol. 11(2), pages 219-243, July.
    2. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, July.
    3. Phillips, Peter C.B. & Sul, Donggyu, 2007. "Bias in dynamic panel estimation with fixed effects, incidental trends and cross section dependence," Journal of Econometrics, Elsevier, vol. 137(1), pages 162-188, March.
    4. Henderson, Daniel J. & Carroll, Raymond J. & Li, Qi, 2008. "Nonparametric estimation and testing of fixed effects panel data models," Journal of Econometrics, Elsevier, vol. 144(1), pages 257-275, May.
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    8. Su, Liangjun & Jin, Sainan, 2012. "Sieve estimation of panel data models with cross section dependence," Journal of Econometrics, Elsevier, vol. 169(1), pages 34-47.
    9. Peter C. B. Phillips & Donggyu Sul, 2003. "Dynamic panel estimation and homogeneity testing under cross section dependence *," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 217-259, June.
    10. Jerry Coakley & Ana-Maria Fuertes & Ron Smith, 2002. "A Principal Components Approach to Cross-Section Dependence in Panels," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B5-3, International Conferences on Panel Data.
    11. Ng, Serena, 2006. "Testing Cross-Section Correlation in Panel Data Using Spacings," Journal of Business & Economic Statistics, American Statistical Association, vol. 24, pages 12-23, January.
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    Cited by:

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    2. Eunju Hwang & Dong Wan Shin, 2017. "Stationary bootstrapping for common mean change detection in cross-sectionally dependent panels," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 80(6), pages 767-787, November.
    3. Bin Peng & Giovanni Forchini, 2014. "Consistent Estimation of Panel Data Models with a Multifactor Error Structure when the Cross Section Dimension is Large," Working Paper Series 20, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    4. Jiang, Bin & Yang, Yanrong & Gao, Jiti & Hsiao, Cheng, 2021. "Recursive estimation in large panel data models: Theory and practice," Journal of Econometrics, Elsevier, vol. 224(2), pages 439-465.
    5. Zongwu Cai & Ying Fang & Qiuhua Xu, 2020. "Testing Capital Asset Pricing Models using Functional-Coefficient Panel Data Models with Cross-Sectional Dependence," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202009, University of Kansas, Department of Economics, revised Jul 2020.
    6. Cai, Zongwu & Fang, Ying & Xu, Qiuhua, 2022. "Testing capital asset pricing models using functional-coefficient panel data models with cross-sectional dependence," Journal of Econometrics, Elsevier, vol. 227(1), pages 114-133.
    7. Eduardo A. Souza-Rodrigues, 2016. "Nonparametric Regression with Common Shocks," Econometrics, MDPI, vol. 4(3), pages 1-17, September.
    8. Hua Liu & Youquan Pei & Qunfang Xu, 2020. "Estimation for varying coefficient panel data model with cross-sectional dependence," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 83(3), pages 377-410, April.

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