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Panels with non-stationary multifactor error structures
Open accessAbstract
The presence of cross-sectionally correlated error terms invalidates much inferential theory of panel data models. Recently work by Pesaran (2006) has suggested a method which makes use of cross-sectional averages to provide valid inference for stationary panel regressions with multifactor error structure. This paper extends this work and examines the important case where the unobserved common factors follow unit root processes and could be cointegrated. It is found that the presence of unit roots does not affect most theoretical results which continue to hold irrespective of the integration and the cointegration properties of the unobserved factors. This finding is further supported for small samples via an extensive Monte Carlo study. In particular, the results of the Monte Carlo study suggest that the cross-sectional average based method is robust to a wide variety of data generation processes and has lower biases than all of the alternative estimation methods considered in the paper.
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Citations
Cites
Estimating long-run relationships from dynamic heterogeneous panels
Pesaran, M. H., & Smith, R. (1995) · Journal of Econometrics · doi:10.1016/0304-4076(94)01644-f · Cited by 5,479 · cited 2×
“One is the Mean Group (MG) estimator proposed in Pesaran and Smith (1995) and the other is a generalization of the fixed effects estimator that allows for the possibility of cross section dependence.”
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Ahmad, M., Jiang, P., Majeed, A., Umar, M., Khan, Z., & Muhammad, S. (2020) · Resources Policy · doi:10.1016/j.resourpol.2020.101817 · Cited by 773
Dong, K., Hochman, G., Zhang, Y., Sun, R., Li, H., & Liao, H. (2018) · Energy Economics · doi:10.1016/j.eneco.2018.08.017 · Cited by 700
Shen, Y., Su, Z.-W., Malik, M. Y., Umar, M., Khan, Z., & Khan, M. (2021) · Science of The Total Environment · doi:10.1016/j.scitotenv.2020.142538 · Cited by 698
Weak and strong cross‐section dependence and estimation of large panels
Chudik, A., Pesaran, M. H., & Tosetti, E. (2011) · The Econometrics Journal · doi:10.1111/j.1368-423x.2010.00330.x · Cited by 688
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Metadata
- Authors
- Kapetanios, G., Pesaran, M. H., & Yamagata, T.
- Venue
- Journal of Econometrics
- Publisher
- Elsevier BV
- Published
- 2011-02
- Volume
- 160
- Issue
- 2
- Pages
- 326-348
- ISSN
- 0304-4076 (ISSN-L)
- OpenAlex
- W2110842229
- Cited by
- 975
- References
- 1
- FWCI
- 16.72
- Type
- journal article
- Language
- en
- Open access
- green
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- Kapetanios, G., Pesaran, M. H., & Yamagata, T. (2011). Panels with non-stationary multifactor error structures. Journal of Econometrics. https://doi.org/10.1016/j.jeconom.2010.10.001
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
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