Friday, November 8, 2019

Panel GLS w Arbitrary Cov Matrices

Check out the fine new paper, "Feasible Generalized Least Squares for Panel Data with
Cross-sectional and Serial Correlations," by Jushan Bai, Sung Hoon Choi, and Yuan Liao.

Really nice feasible GLS (yes, GLS!) panel regression allowing for general disturbance heteroskedasticity, serial correlation, and/or spatial correlation.

It's an interesting move back to efficient GLS estimation instead of punting on efficiency and just White-washing s.e.'s with a HAC estimator, which I always found rather unsettling. (See here and here.)  The cool twist is that Bai et al. allow for very general disturbance covariance structures, just as with HAC, without giving away efficiency since they do GLS. The best of both worlds!

So nice to have one of the paper's authors, Yuan Liao, visiting Penn Economics this year. What a windfall for us.

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