Pooled Bewley Estimator of Long-Run Relationships in Dynamic Heterogenous Panels

Alexander Chudik, Mohammad Pesaran and Ronald Smith

No 409, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: Using a transformation of the autoregressive distributed lag model due to Bewley, a novel pooled Bewley (PB) estimator of long-run coefficients for dynamic panels with heterogeneous short-run dynamics is proposed. The PB estimator is directly comparable to the widely used Pooled Mean Group (PMG) estimator, and is shown to be consistent and asymptotically normal. Monte Carlo simulations show good small sample performance of PB compared to the existing estimators in the literature, namely PMG, panel dynamic OLS (PDOLS) and panel fully-modified OLS (FMOLS). Application of two bias-correction methods and a bootstrapping of critical values to conduct inference robust to cross-sectional dependence of errors are also considered. The utility of the PB estimator is illustrated in an empirical application to the aggregate consumption function.

Keywords: Heterogeneous dynamic panels; I(1) regressors; pooled mean group estimator (PMG); Autoregressive-Distributed Lag model (ARDL); Bewley transform; PDOLS; FMOLS; bias correction; robust inference; cross-sectional dependence (search for similar items in EconPapers)
JEL-codes: C12 C13 C23 C33 (search for similar items in EconPapers)
Pages: 40
Date: 2021-05-27, Revised 2023-11-08
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Pooled Bewley Estimator of Long Run Relationships in Dynamic Heterogenous Panels (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:92809

DOI: 10.24149/gwp409r2

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