On generalized CCE estimation

原文摘要

The widely-used common correlated effects (CCE) estimator, pioneered by Pesaran (2006), is computed using least squares applied to auxiliary regressions where the observed regressors are augmented with cross-sectional averages of the dependent variable and regressors. However, the CCE estimator requires a crucial rank condition and becomes inconsistent when this condition is violated and the factor loadings of the x- and y -equations are correlated, causing an endogeneity issue. This paper proposes a generalized CCE (GCCE) estimator by augmenting the regression with both cross-sectional and time-series averages of the regressors. We argue that the time-series average can serve as “control variables” to address the endogeneity issue. We show that the GCCE and CCE estimators are asymptotically equivalent when the rank condition holds, and the GCCE estimator remains consistent even when the rank condition is violated under our “control variable” condition. Therefore, our GCCE estimator is doubly robust, achieving consistency under either the rank condition or the “control variable” condition. Furthermore, we propose a leave-one-out jackknife method to conduct valid inferences regardless of whether the rank condition holds. Monte Carlo simulations demonstrate excellent performance of our estimators and inference methods in finite samples. We apply our new methods to two datasets to estimate the production function and gravity equation.

摘要来源：RePEc · 出版社摘要