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A Two-Stage Estimator for Heterogeneous Panel Models with Common Factors

Author

Listed:
  • Carolina Castagnetti

    (Department of Economics and Management, University of Pavia)

  • Eduardo Rossi

    (Department of Economics and Management, University of Pavia)

  • Lorenzo Trapani

    (Faculty of Finance,Cass Business School, City University, London (UK))

Abstract

This paper considers estimation in a stationary heterogeneous panel model where common unknown factors are present. A two-stage estimator is proposed. This estimator is based on the CCE estimator (Pesaran, 2006) in the first stage and on a similar approach to the Interactive Effect estimator (Bai, 2009) in the second stage. The asymptotic properties of this estimator are provided alongside of the comparative finite-sample properties of a range of estimators by means of Monte Carlo experiments.

Suggested Citation

  • Carolina Castagnetti & Eduardo Rossi & Lorenzo Trapani, 2014. "A Two-Stage Estimator for Heterogeneous Panel Models with Common Factors," DEM Working Papers Series 066, University of Pavia, Department of Economics and Management.
    • Handle: RePEc:pav:demwpp:demwp0066
    as

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    References listed on IDEAS

    as
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    Cited by:

    1. Bin Peng & Liangjun Su & Joakim Westerlund & Yanrong Yang, 2021. "Interactive Effects Panel Data Models with General Factors and Regressors," Monash Econometrics and Business Statistics Working Papers 23/21, Monash University, Department of Econometrics and Business Statistics.
    2. Castagnetti, Carolina, 2018. "A novel approach for testing the parity relationship between CDS and credit spread," Economics Letters, Elsevier, vol. 172(C), pages 115-117.

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    More about this item

    Keywords

    Large panels; Factor error structure; Principal components; Common regressors; Cross-section dependence;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis

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