On the Relationship Between Cross-Sectional and Time Series Measures of Uncertainty

In this paper, we provide a coherent theoretical investigation of the relationship between cross-section and time series measures of uncer- tainty, which are often employed as perfect substitutes in empirical applica- tions. The main .nding of our analysis is that there exists an ambiguous sign in the discrepancy between the two measures of uncertainty arising from the presence of cross-sectional dependence amongst individuals. Thus our study underpins the importance of accounting for cross-sectional dependence, in line with recent inferential theory of panel data models.