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On the role of the rank condition in CCE estimation of factor-augmented panel regressions

journal contribution
posted on 2017-03-01, 00:00 authored by H Karabiyik, S Reese, Joakim WesterlundJoakim Westerlund
A popular approach to factor-augmented panel regressions is the common correlated effects (CCE) estimator of Pesaran (2006). This paper points to a problem with the CCE approach that appears in the empirically relevant case when the number of factors is strictly less than the number of observables used in their estimation. Specifically, the use of too many observables causes the second moment matrix of the estimated factors to become asymptotically singular, an issue that has not yet been appropriately accounted for. The purpose of the present paper is to fill this gap in the literature.

History

Journal

Journal of econometrics

Volume

197

Issue

1

Pagination

60 - 64

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

0304-4076

eISSN

1872-6895

Language

eng

Publication classification

C1 Refereed article in a scholarly journal; C Journal article

Copyright notice

2016, Elsevier