Journal
JOURNAL OF ECONOMETRICS
Volume 185, Issue 2, Pages 372-377Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jeconom.2014.09.014
Keywords
Factor-augmented panel regressions; Common factor models; Principal components; Cross-section averages; Cross-section dependence
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In spite of the increased use of factor-augmented regressions in recent years, little is known regarding the relative merits of the two main approaches to estimation and inference, namely, the cross-sectional average and principal component estimators. By providing a formal comparison of the approaches, the current paper fills this gap in the literature. (C) 2014 Elsevier B.V. All rights reserved.
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