Working Papers, Department of Economics, Lund University
PANICCA - PANIC on Cross-Section Averages
() and Joakim Westerlund
Abstract: The cross-section average (CA) augmentation approach of
Pesaran (2007) and Pesaran et al. (2013), and the principal
components-based panel analysis of non-stationarity in idiosyncratic and
common components (PANIC) of Bai and Ng (2004, 2010) are among the most
popular “second-generation” approaches for cross-section correlated panels.
One feature of these approaches is that they have different strengths and
weaknesses. The purpose of the current paper is to develop PANICCA, a
combined approach that exploits the strengths of both CA and PANIC.
Keywords: PANIC; cross-section average augmentation; unit root test; cross-section dependence; common factors; (follow links to similar papers)
JEL-Codes: C12; C13; C33; C36; (follow links to similar papers)
39 pages, October 20, 2014, Revised March 24, 2015
- This paper is published as:
Reese, Simon and Joakim Westerlund, (2016), 'PANICCA - PANIC on Cross-Section Averages', Journal of Applied Econometrics, Vol. 31, No. 6, pages 961-981
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