A Nonlinear Panel Data Model of Cross-sectional Dependence∗
نویسندگان
چکیده
This paper proposes a new panel model of cross-sectional dependence. The model has a number of potential structural interpretations that relate to economic phenomena such as herding in financial markets. On an econometric level, it provides a flexible approach of modelling interactions across panel units and can generate endogenous cross-sectional dependence that can resemble the dependence that arises in a variety of existing models, such as factor or spatial models. We discuss the theoretical properties of the model and ways in which inference can be carried out. We supplement this analysis with a detailed Monte Carlo study and two empirical illustrations. JEL Classification: C31, C33, C51, E31, G14.
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