EconStor >
Forschungsinstitut zur Zukunft der Arbeit (IZA), Bonn >
IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA) >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/46060
  
Title:Aggregation in large dynamic panels PDF Logo
Authors:Pesaran, Mohammad Hashem
Chudik, Alexander
Issue Date:2011
Series/Report no.:Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 5478
Abstract:This paper considers the problem of aggregation in the case of large linear dynamic panels, where each micro unit is potentially related to all other micro units, and where micro innovations are allowed to be cross sectionally dependent. Following Pesaran (2003), an optimal aggregate function is derived, and the limiting behavior of the aggregation error is investigated as N (the number of cross section units) increases. Certain distributional features of micro parameters are also identified from the aggregate function. The paper then establishes Granger's (1980) conjecture regarding the long memory properties of aggregate variables from 'a very large scale dynamic, econometric model', and considers the time profiles of the effects of macro and micro shocks on the aggregate and disaggregate variables. Some of these findings are illustrated in Monte Carlo experiments, where we also study the estimation of the aggregate effects of micro and macro shocks. The paper concludes with an empirical application to consumer price inflation in Germany, France and Italy, and re-examines the extent to which observed inflation persistence at the aggregate level is due to aggregation and/or common unobserved factors. Our findings suggest that dynamic heterogeneity as well as persistent common factors are needed for explaining the observed persistence of the aggregate inflation.
Subjects:aggregation
large dynamic panels
long memory
weak and strong cross section dependence
VAR models
impulse responses
factor models
inflation persistence
JEL:C43
E31
Persistent Identifier of the first edition:urn:nbn:de:101:1-201104113515
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

Files in This Item:
File Description SizeFormat
66205587X.pdf480.44 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/46060

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.