Recursive estimation in large panel data models: Theory and practice

Bai (2009) proposes recursive estimation for panel data models with interactive effects. We study the behaviours of this estimator. The formula is established that shows estimators depend on initial estimator, population structure and iterative steps. Under some general scenarios, we find estimator becomes consistent after first iteration from any initials. also obtain optimal number steps under prescribed conditions. central limit theorem when OLS. Various simulations are conducted to support our theoretical findings.