On CCE estimation of factor-augmented models when regressors are not linear in the factors

Research output: Contribution to journalArticle

Abstract

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.

Details

Authors
Organisations
External organisations
  • Deakin University
Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Economics
  • Probability Theory and Statistics

Keywords

  • CCE, Non-linear regressors, Factor-augmented regression models
Original languageEnglish
Pages (from-to)5-7
Number of pages3
JournalEconomics Letters
Volume178
Publication statusPublished - 2019 May
Publication categoryResearch
Peer-reviewedYes