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Consistent Estimation of Panel Data Models with a Multifactor Error Structure when the Cross Section Dimension is Large

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Abstract

The paper studies a panel data models with a multifactor structure in both the errors and the regressors in a microeconometric setting in which the time dimension is fixed and possibly very small. An estimator is proposed that is consistent for fixed T as N tends to infinity and that does not impose restrictive conditions on the number of factors or the number of regressors or the time series properties of the panel. A small Monte Carlo simulation shows that this estimator is very accurate for very small values of T. Two empirical cases are provided to demonstrate performances of our estimator in practice.

Suggested Citation

  • 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.
    • Handle: RePEc:uts:ecowps:20
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    References listed on IDEAS

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    1. Sarafidis, Vasilis, 2009. "GMM Estimation of Short Dynamic Panel Data Models With Error Cross-Sectional Dependence," MPRA Paper 25176, University Library of Munich, Germany.
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    6. M. Hashem Pesaran, 2021. "General diagnostic tests for cross-sectional dependence in panels," Empirical Economics, Springer, vol. 60(1), pages 13-50, January.
    7. Vasilis Sarafidis & Donald Robertson, 2009. "On the impact of error cross-sectional dependence in short dynamic panel estimation," Econometrics Journal, Royal Economic Society, vol. 12(1), pages 62-81, March.
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    Cited by:

    1. G. Forchini & Bin Jiang & Bin Peng, 2015. "Common Shocks in panels with Endogenous Regressors," Monash Econometrics and Business Statistics Working Papers 8/15, Monash University, Department of Econometrics and Business Statistics.

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    More about this item

    Keywords

    Panel data model; cross-sectional dependence; asymptotic theory;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - 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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