{"title":"CCE in panels with general unknown factors","authors":"Joakim Westerlund","doi":"10.1111/ectj.12110","DOIUrl":null,"url":null,"abstract":"<div>\n \n <p>A popular approach to factor-augmented panel regressions is the common correlated effects (CCE) estimator of Pesaran (2006). In fact, the approach is so popular that it has given rise to a separate CCE literature. A common assumption in this literature is that the common factors are stationary, which would seem to rule out many empirically relevant cases. Moreover, deterministic factors are typically treated as known, which raises the issue of model misspecification. In the current paper, we show how the conditions placed on the factors in CCE can be made much more general than was previously thought possible. In fact, save for some mild regulatory moment conditions, the factors are essentially unrestricted. One implication of this result is that there is no need to discriminate between deterministic and stochastic factors, but that one can instead treat them all as unknown. This is very convenient for practitioners, because it means that under certain conditions they are spared the problem of having to decide which deterministic terms to include in the model.</p>\n </div>","PeriodicalId":50555,"journal":{"name":"Econometrics Journal","volume":null,"pages":null},"PeriodicalIF":2.9000,"publicationDate":"2018-01-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1111/ectj.12110","citationCount":"19","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Econometrics Journal","FirstCategoryId":"96","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/ectj.12110","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 19
Abstract
A popular approach to factor-augmented panel regressions is the common correlated effects (CCE) estimator of Pesaran (2006). In fact, the approach is so popular that it has given rise to a separate CCE literature. A common assumption in this literature is that the common factors are stationary, which would seem to rule out many empirically relevant cases. Moreover, deterministic factors are typically treated as known, which raises the issue of model misspecification. In the current paper, we show how the conditions placed on the factors in CCE can be made much more general than was previously thought possible. In fact, save for some mild regulatory moment conditions, the factors are essentially unrestricted. One implication of this result is that there is no need to discriminate between deterministic and stochastic factors, but that one can instead treat them all as unknown. This is very convenient for practitioners, because it means that under certain conditions they are spared the problem of having to decide which deterministic terms to include in the model.
期刊介绍：
The Econometrics Journal was established in 1998 by the Royal Economic Society with the aim of creating a top international field journal for the publication of econometric research with a standard of intellectual rigour and academic standing similar to those of the pre-existing top field journals in econometrics. The Econometrics Journal is committed to publishing first-class papers in macro-, micro- and financial econometrics. It is a general journal for econometric research open to all areas of econometrics, whether applied, computational, methodological or theoretical contributions.
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