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On the Heterogeneity Bias of Pooled Estimators in Stationary VAR Specifications

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  • Alessandro Rebucci

Abstract

This paper studies asymptotically the bias of the fixed effect (FE) estimator induced by cross-section heterogeneity in the slope parameters of stationary vector autoregressions (VARs). The paper also compares the FE, the mean group estimator (MG), and a simple instrumental variable alternative (IV) in Monte Carlo simulations. The main results are: (i) asymptotically, the heterogeneity bias of the FE may be more or less severe in VAR specifications than in standard dynamic panel data specifications; (ii) in Monte Carlo simulations, slope heterogeneity must be relatively high to be a source of concern for pooled estimators; (iii) when this happens, the panel must be longer than a typical macro dataset for the MG to be a viable solution.

Suggested Citation

  • Alessandro Rebucci, 2003. "On the Heterogeneity Bias of Pooled Estimators in Stationary VAR Specifications," IMF Working Papers 03/73, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:03/73
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    Cited by:

    1. Tillmann, Peter, 2013. "Capital inflows and asset prices: Evidence from emerging Asia," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 717-729.
    2. Towbin, Pascal & Weber, Sebastian, 2013. "Limits of floating exchange rates: The role of foreign currency debt and import structure," Journal of Development Economics, Elsevier, vol. 101(C), pages 179-194.
    3. repec:eso:journl:v:47:y:2016:i:3:p:339-360 is not listed on IDEAS
    4. Tomasz Wieladek & Sergi Lanau, 2012. "Financial Regulation and the Current Account," IMF Working Papers 12/98, International Monetary Fund.
    5. Aiyar, Shekhar & Calomiris , Charles W & Wieladek, Tomasz, 2012. "Does macropru leak? Evidence from a UK policy experiment," Bank of England working papers 445, Bank of England.
    6. Robert Gillanders, 2016. "The Effects of Foreign Aid in Sub-Saharan Africa," The Economic and Social Review, Economic and Social Studies, vol. 47(3), pages 339-360.

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