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

  • William T. Gavin

    (Federal Reserve Bank of St. Louis, USA)

  • Athena T. Theodorou

    (Federal Reserve Bank of St. Louis, USA)

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 macrodynamic behaviour 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 support the hypothesis that many industrialized nations have similar macroeconomic dynamics. Copyright © 2005 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/for.954
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 24 (2005)
Issue (Month): 3 ()
Pages: 203-219

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Handle: RePEc:jof:jforec:v:24:y:2005:i:3:p:203-219
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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