Joakim Westerlund
Professor, Programme director – Master of Data Analytics and Business Economics
The factor analytical approach in trending near unit root panels
Author
Summary, in English
In this study, we revisit the factor analytical (FA) approach for (near unit root) dynamic panel data models, whose asymptotic distribution has been shown to be normal and well centered at zero without the need for valid instruments or correction for bias. It is therefore very appealing. The question is: Does the appeal of FA, which so far has only been documented for fixed effects panels, extends to panels with incidental trends? This is an important question, because many persistent variables are trending. The answer turns out to be negative. In particular, while consistent, the asymptotic normality of FA breaks down when there is an exact unit root present, which limits its applicability.
Department/s
- Department of Economics
Publishing year
2022
Language
English
Pages
501-508
Publication/Series
Journal of Time Series Analysis
Volume
43
Issue
3
Document type
Journal article (comment)
Publisher
Wiley-Blackwell
Topic
- Economics and Business
Keywords
- Factor analytical method
- Hessian
- incidental trends
- near unit root
- panel
Status
Published
ISBN/ISSN/Other
- ISSN: 0143-9782