Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/55170
Authors: 
Kapetanios, George
Mitchell, James
Shin, Yongcheol
Year of Publication: 
2010
Series/Report no.: 
Working Paper // School of Economics and Finance, Queen Mary, University of London 673
Abstract: 
This paper proposes a new panel model of cross-sectional dependence. The model has a number of potential structural interpretations that relate to economic phenomena such as herding in financial markets. On an econometric level it provides a flexible approach to the modelling of interactions across panel units and can generate endogenous cross-sectional dependence that can resemble such dependence arising in a variety of existing models such as factor or spatial models. We discuss the theoretical properties of the model and ways in which inference can be carried out. We supplement this analysis with a detailed Monte Carlo study and two empirical illustrations.
Subjects: 
cross-sectional dependence
nonlinearity
factor models
panel models
fixed effects
JEL: 
C31
C32
C33
G14
Document Type: 
Working Paper

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