Skip to main content
×
Home
    • Aa
    • Aa

DYNAMIC LINEAR PANEL REGRESSION MODELS WITH INTERACTIVE FIXED EFFECTS

  • Hyungsik Roger Moon (a1) (a2) and Martin Weidner (a3)
Abstract

We analyze linear panel regression models with interactive fixed effects and predetermined regressors, for example lagged-dependent variables. The first-order asymptotic theory of the least squares (LS) estimator of the regression coefficients is worked out in the limit where both the cross-sectional dimension and the number of time periods become large. We find two sources of asymptotic bias of the LS estimator: bias due to correlation or heteroscedasticity of the idiosyncratic error term, and bias due to predetermined (as opposed to strictly exogenous) regressors. We provide a bias-corrected LS estimator. We also present bias-corrected versions of the three classical test statistics (Wald, LR, and LM test) and show their asymptotic distribution is a χ2-distribution. Monte Carlo simulations show the bias correction of the LS estimator and of the test statistics also work well for finite sample sizes.

Copyright
Corresponding author
*Address correspondence to Hyungsik Roger Moon, Department of Economics and USC Dornsife INET, University of Southern California, Los Angeles, CA 90089-0253. e-mail: moonr@usc.edu.
Linked references
Hide All

This list contains references from the content that can be linked to their source. For a full set of references and notes please see the PDF or HTML where available.

S.C. Ahn , Y.H. Lee , & P. Schmidt (2001) GMM estimation of linear panel data models with time-varying individual effects. Journal of Econometrics 101(2), 219255.

D.W.K. Andrews (2001) Testing when a parameter is on the boundary of the maintained hypothesis. Econometrica 69(3), 683734.

J. Bai & S. Ng (2004) A panic attack on unit roots and cointegration. Econometrica 72(4), 11271177.

B.S. Bernanke , J. Boivin , & P. Eliasz (2005) Measuring the effects of monetary policy: A factor-augmented vector autoregressive (favar) approach. The Quarterly Journal of Economics 120(1), 387422.

S. Berry , J. Levinsohn , & A. Pakes (1995) Automobile prices in market equilibrium. Econometrica pp. 841890.

G. Chamberlain & M. Rothschild (1983) Arbitrage, factor structure, and mean-variance analysis on large asset markets. Econometrica 51(5), 12811304.

V. Chernozhukov & C. Hansen (2005) An iv model of quantile treatment effects. Econometrica 73(1), 245261.

J. Hahn & W. Newey (2004) Jackknife and analytical bias reduction for nonlinear panel models. Econometrica 72(4), 12951319.

H.R. Moon & M. Weidner (2015) Linear regression for panel with unknown number of factors as interactive fixed effects. Econometrica 83(4), 15431579.

M.H. Pesaran (2006) Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica 74(4), 9671012.

J.W. Silverstein (1989) On the eigenvectors of large dimensional sample covariance matrices. J. Multivar. Anal. 30(1), 116.

J.H. Stock & M.W. Watson (2002) Forecasting using principal components from a large number of predictors. Journal of the American Statistical Association 97, 11671179.

Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Econometric Theory
  • ISSN: 0266-4666
  • EISSN: 1469-4360
  • URL: /core/journals/econometric-theory
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×
Type Description Title
PDF
Supplementary Materials

Moon and Weidner supplementary material
Moon and Weidner supplementary material 1

 PDF (464 KB)
464 KB
UNKNOWN
Supplementary Materials

Moon and Weidner supplementary material
Moon and Weidner supplementary material 2

 Unknown (214 KB)
214 KB

Metrics

Altmetric attention score

Full text views

Total number of HTML views: 0
Total number of PDF views: 247 *
Loading metrics...

Abstract views

Total abstract views: 959 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 21st September 2017. This data will be updated every 24 hours.