On the estimation and inference in factor-augmented panel regressions with correlated loadings

J. Westerlund; J.R.Y.J. Urbain

doi:10.1016/j.econlet.2013.03.022

On the estimation and inference in factor-augmented panel regressions with correlated loadings

J. Westerlund^*, J.R.Y.J. Urbain

^*Corresponding author for this work

Quantitative Economics

Research output: Contribution to journal › Article › Academic › peer-review

Abstract

In an influential paper, Pesaran [Pesaran, M.H. (2006). Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica 74, 967-1012] proposes a very simple estimator of factor-augmented regressions that has since then become very popular. In this note we demonstrate how the presence of correlated factor loadings can render this estimator inconsistent. (C) 2013 Elsevier B.V. All rights reserved.

Original language	English
Pages (from-to)	247-250
Number of pages	4
Journal	Economics Letters
Volume	119
Issue number	3
DOIs	https://doi.org/10.1016/j.econlet.2013.03.022
Publication status	Published - Jun 2013

Keywords

Factor-augmented panel regressions
Common factor models
Cross-sectional averages
Cross-sectional dependence

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10.1016/j.econlet.2013.03.022

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abstract = "In an influential paper, Pesaran [Pesaran, M.H. (2006). Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica 74, 967-1012] proposes a very simple estimator of factor-augmented regressions that has since then become very popular. In this note we demonstrate how the presence of correlated factor loadings can render this estimator inconsistent. (C) 2013 Elsevier B.V. All rights reserved.",

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AB - In an influential paper, Pesaran [Pesaran, M.H. (2006). Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica 74, 967-1012] proposes a very simple estimator of factor-augmented regressions that has since then become very popular. In this note we demonstrate how the presence of correlated factor loadings can render this estimator inconsistent. (C) 2013 Elsevier B.V. All rights reserved.

KW - Factor-augmented panel regressions

KW - Common factor models

KW - Cross-sectional averages

KW - Cross-sectional dependence

U2 - 10.1016/j.econlet.2013.03.022

DO - 10.1016/j.econlet.2013.03.022

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VL - 119

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JO - Economics Letters

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ER -

On the estimation and inference in factor-augmented panel regressions with correlated loadings

Abstract

Keywords

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