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A0366
Title: Interactive effects panel data models with general factors and regressors Authors:  Liangjun Su - Tsinghua University (China)
Joakim Westerlund - Lund University (Sweden) [presenting]
Bin Peng - University of Bath (United Kingdom)
Yanrong Yang - The Australian National University (Australia)
Abstract: A model with general regressors and unobservable factors is considered. An estimator based on iterated principal components is proposed, which is shown to be not only asymptotically normal and oracle efficient, but under certain conditions also free of the otherwise so common asymptotic incidental parameters bias. Interestingly, the conditions required to achieve unbiasedness become weaker the stronger the trends in the factors, and if the trending is strong enough, unbiasedness comes at no cost at all. In particular, the approach does not require any knowledge of how many factors there are, or whether they are deterministic or stochastic. The order of integration of the factors is also treated as unknown, as is the order of integration of the regressors, which means that there is no need to pre-test for unit roots, or to decide on which deterministic terms to include in the model.