Aggregation bias in macro models: does it matter foir the euro area?

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Aggregation bias in macro models: does it matter foir the euro area?

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Libero Monteforte () (Bank of Italy, Economic Research Department)

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Libero Monteforte

Abstract

The euro area represents a case-study of great institutional relevance for the econometric problem of aggregation bias. The available data can be used to analyze the area either with aggregate or with country-specific models. The choice should be the result of a statistical comparison between the two options, with respect to the specific model. In this paper we suggest a representation of the aggregation error based on unobservable components and explicitly conceived for aggregations over a small number of economies. In the empirical application two alternative models are estimated: the first specifies the main euro countries while the other refers to the whole area. We then evaluate the aggregation error either from the viewpoint of a comparison of the two models with standard methods, or looking at the components of the representation suggested here. Both categories of results indicate non-negligible aggregation errors for the euro area.

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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 534.

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Date of creation: Dec 2004
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Handle: RePEc:bdi:wptemi:td_534_04

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Article
- Monteforte, Libero, 2007. "Aggregation bias in macro models: Does it matter for the euro area?," Economic Modelling, Elsevier, vol. 24(2), pages 236-261, March. [Downloadable!] (restricted)

Find related papers by JEL classification:
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-07-03 (All new papers)
NEP-ECM-2005-07-03 (Econometrics)
NEP-EEC-2005-07-03 (European Economics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Marchetti, D.J., 1999. "Markup and the Business Cycle: Evidence from Italian Manufacturing Branches," Papers 362, Banca Italia - Servizio di Studi.
Bonaccorsi di Patti, Emilia & Gobbi, Giorgio, 2001. "The changing structure of local credit markets: Are small businesses special?," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2209-2237, December. [Downloadable!] (restricted)
Piero Cipollone, 2001. "La convergenza dei salari manifatturieri in Europa," Temi di discussione (Economic working papers) 398, Bank of Italy, Economic Research Department. [Downloadable!]

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Anna Piretti & Charles St-Arnaud, 2006. "Launching the NEUQ: The New European Union Quarterly Model, A Small Model of the Euro Area and U.K. Economies," Working Papers 06-22, Bank of Canada. [Downloadable!]

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