arXiv 11 Oct 2021 · Econometrics
arXiv:2110.05579 · PDF · DOI · OpenAlex · Extracted main text
This paper studies the estimation of linear panel data models with interactive fixed effects, where one dimension of the panel, typically time, may be fixed. To this end, a novel transformation is introduced that reduces the model to a lower dimension, and, in doing so, relieves the model of incidental parameters in the cross-section. The central result of this paper demonstrates that transforming the model and then applying the principal component (PC) estimator of \cite{bai_panel_2009} delivers $\sqrt{n}$ consistent estimates of regression slope coefficients with $T$ fixed. Moreover, these estimates are shown to be asymptotically unbiased in the presence of cross-sectional dependence, serial dependence, and with the inclusion of dynamic regressors, in stark contrast to the usual case. The large $n$, large $T$ properties of this approach are also studied, where many of these results carry over to the case in which $n$ is growing sufficiently fast relative to $T$. Transforming the model also proves to be useful beyond estimation, a point illustrated by showing that with $T$ fixed, the eigenvalue ratio test of \cite{horenstein} provides a consistent test for the number of factors when applied to the transformed model.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Bai, J (2009) Panel data models with interactive fixed effects | 0.405 | 1 | 1 | 100% |
| 2 | Ahn, S. C., Horenstein, A. R (2013) Eigenvalue ratio test for the number of factors | 0.405 | 1 | 1 | 100% |
Showing the top 2 of 2 scored citations.
arXiv econ.EM papers that cite this one, ranked by how heavily they lean on it.
| Citing paper | Intensity | Mentions | Sections | |
|---|---|---|---|---|
| 1 | A Simple and Computationally Trivial Estimator for Grouped Fixed Effects Models | 0.405 | 1 | 1 |
| 2 | Robust Estimation and Inference in Panels with Interactive Fixed Effects | 0.405 | 1 | 1 |