Estimation of fractionally integrated panels with fixed effects and cross-section dependence

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Journal of Econometrics, ISSN: 0304-4076, Vol: 196, Issue: 2, Page: 248-258

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Yunus Emre Ergemen; Carlos Velasco
Elsevier BV
Economics, Econometrics and Finance; Mathematics
article description
We consider a large N,T heterogeneous panel data model with fixed effects, common factors allowing for cross-section dependence, and persistent data and errors, which are assumed fractionally integrated. We propose individual and common-correlation estimates for the slope parameters while error memory parameters are estimated from regression residuals. The individual parameter estimates are all T consistent, asymptotically normal and mutually uncorrelated, irrespective of cointegration between defactored observables. A study of small-sample performance and an empirical application to realized volatility persistence are included.