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Estimating VARs with long stationary heterogeneous panels: A comparison of the fixed effect and the mean group estimators


  • Rebucci, Alessandro


The most promising candidates for estimating vector autoregressive models with long, stationary, possibly heterogeneous panel data sets (panel-VARs) are the fixed effect (FE) and the mean group (MG) estimators. With a view to providing guidance to applied researchers on how to pool in a panel-VAR, this paper compares the performance of the FE and the MG estimators both asymptotically and in Monte Carlo simulations. The main results of the analysis suggest the use of both estimators in applied work. If FE and MG estimates give similar estimates, the FE estimator should be used because it is more efficient. If they differ, the MG estimator should be used only if the panel is sufficiently long -- say, twice as long as usually recommended in the dynamic panel data literature. If FE and MG estimates differ and the panel is not long enough, neither is generally a desirable alternative and other estimation techniques are needed.

Suggested Citation

  • Rebucci, Alessandro, 2010. "Estimating VARs with long stationary heterogeneous panels: A comparison of the fixed effect and the mean group estimators," Economic Modelling, Elsevier, vol. 27(5), pages 1183-1198, September.
  • Handle: RePEc:eee:ecmode:v:27:y:2010:i:5:p:1183-1198

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    References listed on IDEAS

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    Cited by:

    1. Hristov, Nikolay & Hülsewig, Oliver & Wollmershäuser, Timo, 2014. "The interest rate pass-through in the Euro area during the global financial crisis," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 104-119.
    2. Ambrogio Cesa‐Bianchi & Luis Felipe Cespedes & Alessandro Rebucci, 2015. "Global Liquidity, House Prices, and the Macroeconomy: Evidence from Advanced and Emerging Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(S1), pages 301-335, March.
    3. Bernardita Piedrabuena, 2013. "Competencia en el mercado bancario del crédito en Chile," IDB Publications (Working Papers) 4630, Inter-American Development Bank.


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