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Joakim Westerlund. Photo.

Joakim Westerlund

Professor, Programme director – Master of Data Analytics and Business Economics

Joakim Westerlund. Photo.

The factor analytical approach in trending near unit root panels

Author

  • Joakim Westerlund
  • Milda Norkutė
  • Ovidijus Stauskas

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