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We modify Pesaran's (<jats:italic>Econometrica<\/jats:italic>, 2006, <jats:italic>74<\/jats:italic>(4), 967\u20131012) common correlated effects correction to filter out the interactive unobserved multifactor structure. The estimation can be carried out using nonlinear least squares, by augmenting the set of explanatory variables with cross\u2010sectional averages of both linear and nonlinear terms. We propose pooled and mean group estimators, derive their asymptotic distributions, and show the consistency and asymptotic normality of the coefficients of the model. The features of the proposed estimators are investigated through extensive Monte Carlo experiments. We also present two empirical exercises. The first explores the nonlinear relationship between banks' capital ratios and riskiness. The second estimates the nonlinear effect of national savings on national investment in OECD countries depending on countries' openness.<\/jats:p>","DOI":"10.1002\/jae.2799","type":"journal-article","created":{"date-parts":[[2020,8,28]],"date-time":"2020-08-28T00:43:55Z","timestamp":1598575435000},"page":"125-150","update-policy":"https:\/\/doi.org\/10.1002\/crossmark_policy","source":"Crossref","is-referenced-by-count":7,"title":["Common correlated effect cross\u2010sectional dependence corrections for nonlinear conditional mean panel models"],"prefix":"10.1002","volume":"36","author":[{"given":"Sinem","family":"Hac\u0131o\u011flu Hoke","sequence":"first","affiliation":[{"name":"Bank of England  Threadneedle Street London EC2R 8AH UK"}],"role":[{"role":"author","vocabulary":"crossref"}]},{"given":"George","family":"Kapetanios","sequence":"additional","affiliation":[{"name":"King's College  Bush House, 30 Aldwych London WC2B 4BG UK"}],"role":[{"role":"author","vocabulary":"crossref"}]}],"member":"311","published-online":{"date-parts":[[2020,9,28]]},"reference":[{"key":"e_1_2_8_2_1","doi-asserted-by":"publisher","DOI":"10.1016\/j.jimonfin.2014.06.002"},{"key":"e_1_2_8_3_1","volume-title":"Advanced econometrics","author":"Amemiya T.","year":"1985"},{"key":"e_1_2_8_4_1","doi-asserted-by":"publisher","DOI":"10.1257\/aer.103.3.141"},{"key":"e_1_2_8_5_1","doi-asserted-by":"crossref","unstructured":"Aymanns C. 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