Abstract

Empirical researchers may wonder whether or not a two-way fixed effects estimator (with individual and period fixed effects) is sufficiently sophisticated to isolate the influence of common shocks on the estimation of slope coefficients. If it is not, practitioners need to run the so-called panel factor augmented regression instead. There are two pretesting procedures available in the literature: the use of the estimated number of factors and the direct test of estimated factor loading coefficients. This article compares the two pretesting methods asymptotically. Under the presence of the heterogeneous factor loadings, both pretesting procedures suggest using the common correlated effects (CCE) estimator. Meanwhile, when factor loadings are homogeneous, the pretesting method utilizing the estimated number of factors always suggests more efficient estimation methods. By comparing asymptotic variances, this article finds that when the slope coefficients are homogeneous with homogeneous factor loadings, the two-way fixed effects estimation is more efficient than the CCE estimation. However, when the slope coefficients are heterogeneous with homogeneous factor loadings, the CCE estimation is, surprisingly, more efficient than the two-way fixed effects estimation. By means of Monte Carlo simulations, we verify the asymptotic claims. We demonstrate how to use the two pretesting methods through the use of an empirical example.

摘要

经验研究人员可能想知道，双向固定效应估计器（具有个体和周期固定效应）是否足够复杂，可以隔离常见冲击对斜率系数估计的影响。如果不是，则从业者需要运行所谓的面板因子增强回归。文献中有两种可用的预测试程序：使用估计的因子数和估计因子载荷系数的直接测试。本文渐近地比较了两种预测试方法。在存在异质因子负载的情况下，两个预测试程序都建议使用共同相关效应 (CCE) 估计量。同时，当因子载荷均匀时，利用估计的因子数量的预测试方法总是建议更有效的估计方法。通过比较渐近方差，本文发现当斜率系数齐次且因子载荷齐次时，双向固定效应估计比CCE估计更有效。然而，当斜率系数是异质的且因子载荷均匀时，CCE 估计比双向固定效应估计更有效。通过蒙特卡罗模拟，我们验证了渐近声明。我们通过一个经验例子来演示如何使用这两种预测试方法。双向固定效应估计比 CCE 估计更有效。然而，当斜率系数是异质的且因子载荷均匀时，CCE 估计比双向固定效应估计更有效。通过蒙特卡罗模拟，我们验证了渐近声明。我们通过一个经验例子来演示如何使用这两种预测试方法。双向固定效应估计比 CCE 估计更有效。然而，当斜率系数是异质的且因子载荷均匀时，CCE 估计比双向固定效应估计更有效。通过蒙特卡罗模拟，我们验证了渐近声明。我们通过一个经验例子来演示如何使用这两种预测试方法。