A1593
Title: Transformed estimation for panel VAR models with interactive fixed effects
Authors: Xuan Ding - National University of Singapore (Singapore)
Qiankun Zhou - Louisiana State University (United States)
Bin Peng - School of Economics, Huazhong University of Sci.&Tech. (China) [presenting]
Abstract: Estimation and inference challenges in Panel Vector Autoregressive (PVAR) models with unobservable interactive effects are addressed through a transformed estimation method that does not rely on prior knowledge of factor loadings and factors. To further improve convergence speed, an average estimator based on the transformed method is introduced. Both estimators are shown to be consistent as $T\rightarrow\infty$. Impulse response functions for economic-specific shocks are derived and inference theorems for the estimators are established. Monte Carlo simulations are conducted to examine the finite sample properties of the estimators. An application exploring the relationship between sovereign debt and economic growth finds that the observed negative correlation is mainly attributed to common shocks.
