On the Heterogeneity Bias of Pooled Estimators in Stationary VAR Specifications
IMF Working Papers, April 1, 2003
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- On the Heterogeneity Bias of Pooled Estimators in Stationary VAR Specifications
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Bibliographic details
- Authors: Alessandro Rebucci
- Published: April 1, 2003
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451849486.001
Summary and research question
- Paper studies asymptotically the bias of the fixed effect (FE) estimator induced by cross-section heterogeneity in the slope parameters of stationary vector autoregressions (VARs).
- Also compares the FE, the mean group estimator (MG), and a simple instrumental variable alternative (IV) in Monte Carlo simulations.
Main findings
- (i) Asymptotically, the heterogeneity bias of the FE may be more or less severe in VAR specifications than in standard dynamic panel data specifications.
- (ii) In Monte Carlo simulations, slope heterogeneity must be relatively high to be a source of concern for pooled estimators.
- (iii) When this happens, the panel must be longer than a typical macro dataset for the MG to be a viable solution.
Methodology highlights
- Analytical asymptotic study of FE bias under cross-sectional slope heterogeneity in stationary VARs.
- Monte Carlo simulations to compare FE, MG, and a simple IV alternative across heterogeneity scenarios.
Subject and keywords
- Subject: Vector autoregression, Vector error correction models
- Keywords: WP
Content in this bundle
- On the Heterogeneity Bias of Pooled Estimators in Stationary VAR Specifications - WP/03/73