Title: Local-to-unity asymptotics for the factor analytical approach
Authors: Milda Norkute - Lund University (Sweden) [presenting]
Joakim Westerlund - Lund University (Sweden)
Abstract: A recent study proposes a new factor analytical (FA) method for the estimation of stationary dynamic panel data models with fixed effects. Our interest in this method originates with the fact it does not require explicit detrending of the data, a practice that is known to cause problems of bias and low power in (near) unit root panels, especially in models that include a linear trend. Our purpose is to study the properties of FA when applied to such (near) unit root panels with a possible trend.