Cross-sectional averages versus principal components

J. Westerlund, J.R.Y.J. Urbain

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

In spite of the increased use of factor-augmented regressions in recent years, little is known regarding the relative merits of the two main approaches to estimation and inference, namely, the cross-sectional average and principal component estimators. By providing a formal comparison of the approaches, the current paper fills this gap in the literature.
Original languageEnglish
Pages (from-to)372-377
Number of pages6
JournalJournal of Econometrics
Volume185
Issue number2
Early online date18 Nov 2014
DOIs
Publication statusPublished - Apr 2015

Keywords

  • Factor-augmented panel regressions
  • Common factor models
  • Principal components
  • Cross-section averages
  • Cross-section dependence
  • MODELS
  • PANELS

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