To pool or to aggregate? Tests with a dynamic panel macroeconometric model of Australian state labour markets

Kausik Chaudhuri, Jeffery R. Sheen

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Abstract

We construct a dynamic error correction model of the Australian labor market using a macroeconomic panel across seven states from 1972:3 to 1999:1. Medium-run equilibrium estimates support a real wage-productivity gap and an unemployment gap. The dynamic short-run estimates support expectations-augmented Phillips curves for wages and prices, and demand-led employment growth. We compare three procedures – pooled, aggregate and mean group estimates. Considerable heterogeneity existed across states in the pooled procedure, and state-level variables had a significant impact in the aggregate procedure. Out-of-sample aggregate forecasting for the pooled, aggregate and mean group procedures suggests that the pooled one performs best.
Original languageEnglish
Article number1
Number of pages37
JournalThe B. E. journal of macroeconomics
Volume7
Issue number1
DOIs
Publication statusPublished - 2007
Externally publishedYes

Bibliographical note

Copyright 2007 The Berkeley Electronic Press. Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.

Keywords

  • panel cointegration
  • panel macroeconometric modeling
  • Australian state labor markets
  • aggregation

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