Linear regression for panel with unknown number of factors as interactive fixed effects

Arbeitspapier

In this paper we study the least squares (LS) estimator in a linear panel regression model with unknown number of factors appearing as interactive fixed effects. Assuming that the number of factors used in estimation is larger than the true number of factors in the data we establish the limiting distribution of the LS estimator for the regression coefficients, as the number of time periods and the number of crosssectional units jointly go to infinity. The main result of the paper is that under certain assumptions the limiting distribution of the LS estimator is independent of the number of factors used in the estimation, as long as this number is not underestimated. The important practical implication of this result is that for inference on the regression coefficients one does not necessarily need to estimate the number of interactive fixed effects consistently.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: cemmap working paper ; No. CWP35/14

Classification and Topics

• Classification: Wirtschaft ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; Multiple or Simultaneous Equation Models: Panel Data Models; Spatio-temporal Models
• Subject: Panel data ; interactive fixed effects ; factor models ; perturbation theory of linear operators ; random matrix theory

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Moon, Hyungsik Roger ; Weidner, Martin
• Event: Veröffentlichung
• (who): Centre for Microdata Methods and Practice (cemmap)
• (where): London
• (when): 2014

Further information

• DOI: doi:10.1920/wp.cem.2014.3514
• Handle: http://hdl.handle.net/10419/111367
• Last update: 10.03.2025, 11:43 AM CET