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In this article, we discuss the econometric treatment of macropanels, also known as panel time series. This new approach rejects the assumption of slope homogeneity and handles nonstationarity. It also recognizes that cross-section dependence (that is, some correlation structure in the error term between units due to unobservable common factors) squanders efficiency gains by operating with a panel. This approach uses a new set of estimators known in the literature as the common correlated effect, which essentially consists of increasing the model to be fit by adding the averages of the individuals in each time t, of both the dependent variable and the specific regressors of each individual. We present two commands developed for the evaluation and treatment of cross-section dependence.
Burdisso et al. (Wed,) studied this question.