["Oxford Bulletin of Economics and Statistics, EarlyView. ", "\nABSTRACT\nA popular approach to interactive effects panel data models is the common correlated effects (CCE) estimator of Pesaran (Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica 74, 967–1012, 2006). The current paper proposes a modified version of this estimator that is useful in a number of cases where the original is not expected to work, such as when the number of cross‐sectional units is small. The idea is to use time instead of cross‐sectional averages of the observables to purge the interactive effects.\n"]