This paper proposes the transformed maximum likelihood estimator for short dynamic panel data models with interactive fixed effects, and provides an extension of Hsiao et al. (2002) that allows for a multifactor error structure. This is an important extension since it retains the advantages of...

This paper extends the transformed maximum likelihood approach for estimation of dynamic panel data models by Hsiao, Pesaran, and Tahmiscioglu (2002) to the case where the errors are crosssectionally heteroskedastic. This extension is not trivial due to the incidental parameters problem that...

A transformed likelihood approach is suggested to estimate fixed effects dynamic panel data models. Conditions on the data generating process of the exogenous variables are given to get around the issue of ?incidental parameters?. The maximum likelihood (MLE) and minimum distance estimator (MDE)...

This paper considers estimation and inference in panel vector autoregressions (PVARs) with fixed effects when the time dimension of the panel is finite, and the cross-sectional dimension is large. A Maximum Likelihood (ML) estimator based on a transformed likelihood function is proposed and...

In this paper we adopt a new approach to testing for purchasing power parity, PPP, that is robust to base country effects, cross-section dependence, and aggregation. We test for PPP applying a pairwise approach to the disaggregated data set recently analysed by Imbs, Mumtaz, Ravan and Rey (2005,...

In many applications common in testing for convergence the number of cross-sectional units is large and the number of time periods are few. In these situations tests which are founded upon an omnibus null hypothesis are characterised by a number of problems. In this paper we consider a broad...

In this paper, we assess the Fujita, Krugman and Venables (FKV) nonlinear model of wage differentials. Using a spatial econometric model incorporating a spatial autoregressive error process, we estimate a quadratic form using cross-sectional data for 98 countries from 1970 to 2000. The evidence...

In this paper we examine the spatial and temporal distribution of per capita income across Europe. We base our analysis on a cluster methodology which allows for an endogenous selection of regional clusters using a multivariate test for stationarity where the number and composition of clusters...

This paper proposes a novel regularisation method for the estimation of large covariance matrices, which makes use of insights from the multiple testing literature. The method tests the statistical significance of individual pair-wise correlations and sets to zero those elements that are not...

This paper considers testing the hypothesis that errors in a panel data model are weakly cross sectionally dependent, using the exponent of cross-sectional dependence <img src="http://www.econ.cam.ac.uk/faculty/pesaran/wp12/image3.png" width="11" height="13" />, introduced recently in Bailey, Kapetanios and Pesaran (2012). It is shown that the implicit null of the <em>CD</em> test depends on the...