Joakim Westerlund
Professor, Programme director – Master of Data Analytics and Business Economics
On CCE estimation of factor-augmented models when regressors are not linear in the factors
Author
Summary, in English
In empirical research it is often of interest to include non-linear functions of the explanatory variables, such as squares or interactions, in the specification. A popular technique to estimate such models in the presence of common factors is the Common Correlated Effects (CCE) methodology. However, this approach assumes that the regressors are linear in the factors, which is not the case if variables enter non-linearly. In this note we show how CCE should be implemented when some regressors violate the linear factor model assumption.
Department/s
- Department of Economics
Publishing year
2019-05
Language
English
Pages
5-7
Publication/Series
Economics Letters
Volume
178
Document type
Journal article
Publisher
Elsevier
Topic
- Economics
- Probability Theory and Statistics
Keywords
- CCE
- Non-linear regressors
- Factor-augmented regression models
Status
Published
ISBN/ISSN/Other
- ISSN: 0165-1765