Working Papers, Department of Economics, Lund University
A Factor Analytical Method to Interactive Effects Dynamic Panel Models with or without Unit Root
() and Milda Norkute
Abstract: In a recent study, Bai (Fixed-Effects Dynamic Panel
Models, A Factor Analytical Method. Econometrica 81, 285-314, 2013a)
proposes a new factor analytic (FA) method to the estimation of dynamic
panel data models, which has the unique and very useful property that it is
completely bias-free. However, while certainly appealing, it is restricted
to fixed effects models without a unit root. In many situations of
practical relevance this is a rather restrictive consideration. The purpose
of the current study is therefore to extend the FA approach to cover models
with multiple interactive effects and a possible unit root.
Keywords: Interactive fixed effects; Dynamic panel data models; Unit root; Factor analytical method; (follow links to similar papers)
JEL-Codes: C12; C13; C33; C36; (follow links to similar papers)
100 pages, April 14, 2014
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