A Principal Components Approach to Cross-Section Dependence in Panels



Table 1A. Monte Carlo simulation results

N =30,T

= 300, γi

= 1, ρdi

=0, ρz

=0, σ2di

=1

A) Regression I

Mean

SSD

Min.

Max.

Skew.

Kurt-3

MG estimator

ʌ
^

1.4983

.0217

1.4243

1.5584

.0544

.0215

ʌ

SEι(θ)

.0083

.0011

.0056

.0116

.1819

-.2505

FE estimator

ʌ
^

1.4975

.0216

1.4244

1.5579

.0593

.0299

ʌ

SEι(θ)

.0092

.0002

.0087

.0096

-.1818

.0738

ʌ

SE2(θ)

.0169

.0003

.0161

.0179

.2264

.2835

ʌ

SE3(θ)

.0222

.0014

.0189

.0291

.7026

1.3561

POLS estimator

ʌ
^

1.4967

.0216

1.4232

1.5573

.0589

.0382

ʌ

SE1(θ)

.0092

.0002

.0087

.0096

-.1829

.0829

ʌ

SE2(b)

.0169

.0003

.0161

.0179

.2299

.3072

ʌ

SE3(θ)

.0221

.0015

.0180

.0277

.5705

.6412

B) Regression II

Mean

SSD

Min.

Max.

Skew.

Kurt-3

MG_______________________________

ʌ
b

1.0987

.0165

1.0503

1.1464

.2764

-.1859

ʌ

SE1(b)

.0100

.0013

.0063

.0137

.1158

-.0758

FE_________________________________________

ʌ
b

1.0980

.0163

1.0517

1.1459

.2769

-.1551

ʌ

SE1(b)

.0097

.0001

.0094

.0101

.0156

-.0846

ʌ

SE2(b)

.0098

.0001

.0095

.0103

.2678

.1741

ʌ

SE3(b)

.0109

.0006

.0092

.0133

.2375

.3445

POLS_______________________________________

ʌ
b

1.0977

.0163

1.0506

1.1453

.2678

-.1418

ʌ

SEi(b)

.0097

.0001

.0094

.0100

.0219

-.1046

ʌ

SE2(b)

.0098

.0001

.0095

.0103

.2678

.1635

ʌ

SE3(b)

.0109

.0006

.0093

.0131

.2703

.2165

Note: SE1 is based on the usual covariance matrix formulae for the MG, FE and
POLS estimators.
SE2 is based on (10) and SE3 is based on (13).

21



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