Abstract
In this paper, we consider efficiency improvement in a nonparametric panel data model with cross-sectional dependence. A Generalized Least Squares (GLS)-type estimator is proposed by taking into account this dependence structure. Parameterizing the cross-sectional dependence, a local linear estimator is shown to be dominated by this type of GLS estimator. Also, possible gains in terms of rate of convergence are studied. Asymptotically optimal bandwidth choice is justified. To assess the finite sample performance of the proposed estimators, a Monte Carlo study is carried out. Further, some empirical applications are conducted with the aim of analyzing the implications of the European Monetary Union for its member countries.
Testing Weak Cross-Sectional Dependence in Large Panels
