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To Pool or to Aggregate? Tests with a Dynamic Panel Macroeconometric Model of Australian State Labor Markets

Author

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  • Chaudhuri Kausik

    (Indira Gandhi Institute of Developmental Research)

  • Sheen Jeffrey R

    (University of Sydney)

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.

Suggested Citation

  • Chaudhuri Kausik & Sheen Jeffrey R, 2007. "To Pool or to Aggregate? Tests with a Dynamic Panel Macroeconometric Model of Australian State Labor Markets," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-37, January.
    • Handle: RePEc:bpj:bejmac:v:7:y:2007:i:1:n:1
    DOI: 10.2202/1935-1690.1365
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