20: Consistent Estimation of Panel Data Models with a Multifactor Error Structure when the Cross Section Dimension is Large
Bin Peng, Economics Discipline Group, UTS Business School, University of Technology, Sydney
Giovanni Forchini, University of Surrey
Working paper number: 20
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.
Paper: Download (Format: PDF, Size: 619 Kb)