Asymptotics for Panel Models with Common Shocks

Chihwa Kao, Lorenzo Trapani, Giovanni Urga

Research output: Contribution to journalArticlepeer-review

13 Scopus citations


This article develops a novel asymptotic theory for panel models with common shocks. We assume that contemporaneous correlation can be generated by both the presence of common regressors among units and weak spatial dependence among the error terms. Several characteristics of the panel are considered: cross-sectional and time-series dimensions can either be fixed or large; factors can either be observable or unobservable; the factor model can describe either a cointegration relationship or a spurious regression, and we also consider the stationary case. We derive the rate of convergence and the limit distributions for the ordinary least square (OLS) estimates of the model parameters under all the aforementioned cases.

Original languageEnglish (US)
Pages (from-to)390-439
Number of pages50
JournalEconometric Reviews
Issue number4
StatePublished - Jul 2012


  • Asymptotics
  • Common shocks
  • Cross-sectional dependence
  • Joint limit
  • Martingale difference sequence
  • Panel data

ASJC Scopus subject areas

  • Economics and Econometrics


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