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.
CITATION STYLE
Ergemen, Y. E., & Velasco, C. (2017). Estimation of fractionally integrated panels with fixed effects and cross-section dependence. Journal of Econometrics, 196(2), 248–258. https://doi.org/10.1016/j.jeconom.2016.05.020
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