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Chow-Lin ×N: How adding a panel dimension can improve accuracy

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  • Bettendorf, Timo
  • Bursian, Dirk

Abstract

Single equation models are well established among academics and practitioners to perform temporal disaggregation of low frequency time series using available related series. In this paper, we propose an extension that exploits information from the cross-sectional dimension. More specifically, we suggest jointly estimating multiple Chow and Lin (1971) equations, one for each cross-sectional unit (e.g. country), restricting the coefficients to be the same across units in order to interpolate unit-specific data. Using actual data on real GDP and industrial production for euro area countries we provide evidence that this approach can result in more accurate estimates of the high frequency time series for individual countries. The results suggest that the inclusion of time fixed effects, which is not feasible in standard single equation models, can be helpful in increasing accuracy of the resulting series.

Suggested Citation

  • Bettendorf, Timo & Bursian, Dirk, 2017. "Chow-Lin ×N: How adding a panel dimension can improve accuracy," Economics Letters, Elsevier, vol. 157(C), pages 5-9.
  • Handle: RePEc:eee:ecolet:v:157:y:2017:i:c:p:5-9
    DOI: 10.1016/j.econlet.2017.05.019
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    References listed on IDEAS

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    1. Santos Silva, J. M. C. & Cardoso, F. N., 2001. "The Chow-Lin method using dynamic models," Economic Modelling, Elsevier, vol. 18(2), pages 269-280, April.
    2. Litterman, Robert B, 1983. "A Random Walk, Markov Model for the Distribution of Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(2), pages 169-173, April.
    3. Tommaso Proietti, 2006. "Temporal disaggregation by state space methods: Dynamic regression methods revisited," Econometrics Journal, Royal Economic Society, vol. 9(3), pages 357-372, November.
    4. Litterman, Robert B, 1983. "A Random Walk, Markov Model for the Distribution of Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(2), pages 169-173, April.
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    More about this item

    Keywords

    Temporal disaggregation; Interpolation; Panel data;

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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