Scandinavian Working Papers in Economics
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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2015:3:
PANICCA - PANIC on Cross-Section Averages

Simon Reese () 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

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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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