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A common model approach to macroeconomics: using panel data to reduce sampling error

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  • William T. Gavin
  • Athena T. Theodorou

Abstract

Is there a common model inherent in macroeconomic data? Macroeconomic theory suggests that market economies of various nations should share many similar dynamic patterns; as a result, individual-country empirical models, for a wide variety of countries often include the same variables. Yet, empirical studies often find important roles for idiosyncratic shocks in the differing macroeconomic performance of countries. We use forecasting criteria to examine the macro-dynamic behavior of 15 OECD countries in terms of a small set of familiar, widely–used core economic variables, omitting country-specific shocks. We find this small set of variables and a simple VAR “common model” strongly supports the hypothesis that many industrialized nations have similar macroeconomic dynamics.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2003-045.

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Date of creation: 2004
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Publication status: Published in Journal of Forecasting, April 2005, 24(3), pp. 203-19
Handle: RePEc:fip:fedlwp:2003-045

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Keywords: Time-series analysis ; Forecasting;

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  1. David K. Backus & Patrick J. Kehoe, 1992. "International Evidence on the Historical Properties of Business Cycles," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 92-5, New York University, Leonard N. Stern School of Business, Department of Economics.
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  4. Thomas Doan & Robert B. Litterman & Christopher A. Sims, 1983. "Forecasting and Conditional Projection Using Realistic Prior Distributions," NBER Working Papers 1202, National Bureau of Economic Research, Inc.
  5. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(1), pages 134-44, January.
  6. Fiorito, Riccardo & Kollintzas, Tryphon, 1992. "Stylized Facts of Business Cycles in the G7 from a Real Business Cycles Perspective," CEPR Discussion Papers, C.E.P.R. Discussion Papers 681, C.E.P.R. Discussion Papers.
  7. Canova, Fabio & Ciccarelli, Matteo, 2004. "Forecasting and turning point predictions in a Bayesian panel VAR model," Journal of Econometrics, Elsevier, Elsevier, vol. 120(2), pages 327-359, June.
  8. James H. Stock & Mark W. Watson, 2001. "Forecasting Output and Inflation: The Role of Asset Prices," NBER Working Papers 8180, National Bureau of Economic Research, Inc.
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Cited by:
  1. Gert Peersman, 2012. "Effectiveness of Unconventional Monetary Policy at the Zero Lower Bound," 2012 Meeting Papers, Society for Economic Dynamics 400, Society for Economic Dynamics.
  2. Gavin, William T. & Kemme, David M., 2009. "Using extraneous information to analyze monetary policy in transition economies," Journal of International Money and Finance, Elsevier, Elsevier, vol. 28(5), pages 868-879, September.
  3. Leonardo Gambacorta & Boris Hofmann & Gert Peersman, 2014. "The Effectiveness of Unconventional Monetary Policy at the Zero Lower Bound: A Cross‐Country Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 46(4), pages 615-642, 06.
  4. Baltagi, Badi H., 2006. "Forecasting with panel data," Discussion Paper Series 1: Economic Studies 2006,25, Deutsche Bundesbank, Research Centre.
  5. Galvao Jr., Antonio F., 2011. "Quantile regression for dynamic panel data with fixed effects," Journal of Econometrics, Elsevier, Elsevier, vol. 164(1), pages 142-157, September.
  6. Hristov, Nikolay & Hülsewig, Oliver & Wollmershäuser, Timo, 2012. "Loan supply shocks during the financial crisis: Evidence for the Euro area," Journal of International Money and Finance, Elsevier, Elsevier, vol. 31(3), pages 569-592.
  7. Luca Agnello & Ricardo M. Sousa, 2010. "Fiscal Policy and Asset Prices," NIPE Working Papers, NIPE - Universidade do Minho 25/2010, NIPE - Universidade do Minho.
  8. Tuomas A. Peltonen & Ricardo M. Sousa & Isabel S. Vansteenkiste, 2009. "Fundamentals, Financial Factors and The Dynamics of Investment in Emerging Markets," NIPE Working Papers, NIPE - Universidade do Minho 19/2009, NIPE - Universidade do Minho.

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