Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260329 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 2021:9
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
Abstract: 
A recent study proposed by Westerlund (CCE in Panels with General Unknown Factors, Econometrics Journal, 21, 264-276, 2018) showed that a very popular Common Correlated Effects (CCE) estimator is significantly more applicable than it was thought before. Contrary to the usual stationarity assumption, common factors can in fact be much more general and not unit root only. This also helps to alleviate the uncertainty over deterministic model components since they can be treated as unknown, similarly to unobserved stochastic factors. While very promising, these theoretical results concern only the pooled (CCEP) version of the estimator for the homogeneous parameters, which does no take heterogeneous effects into account. Therefore, it is natural to generalize these findings to the case of unit-specific slopes. It is especially interesting, because many previous studies on heterogeneous slopes did not rigorously account for the usual situation when the factors are proxied by more explanatory variables than needed. As a result, the current setup introduces more uniformity to the CCE theory. We demonstrate that save for some regularity conditions, CCEP and the mean group (CCEMG) estimators are asymptotically normal and unbiased under heterogeneous slopes and general unknown factors.
Subjects: 
Panel data
CCE
Non-Stationarity
Factors
Heterogeneity
JEL: 
C12
C23
C33
Document Type: 
Working Paper

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