Estimation of short dynamic panels in the presence of cross-sectional dependence and dynamic eterogeneity

Robert Gilhooly (), Martin Weale () and Tomasz Wieladek
Additional contact information
Robert Gilhooly: Monetary Policy Committee Unit, Bank of England

No 38, Discussion Papers from Monetary Policy Committee Unit, Bank of England

Abstract: We propose a Bayesian approach to dynamic panel estimation in the presence of cross-sectional dependence and dynamic heterogeneity which is suitable for inference in short panels, unlike alternative estimators. Monte Carlo simulations indicate that our estimator produces less bias, and a lower root mean squared error, than existing estimators. The method is illustrated by estimating a panel VAR on sector level data for labour productivity and hours worked growth for Canada, Germany, France, Italy, the UK and the US from 1992 Q1 to 2011 Q3. We use historical decompositions to examine the determinants of recent output growth in each country. This exercise demonstrates that failure to take cross-sectional dependence into account leads to highly misleading results.

Keywords: Bayesian dynamic panel estimator; dynamic heterogeneity; cross-sectional dependence; labour productivity. (search for similar items in EconPapers)
JEL-codes: C11 C31 C33 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-12-01
New Economics Papers: this item is included in nep-ecm and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... nels-in-the-presence Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mpc:wpaper:0038

Access Statistics for this paper

More papers in Discussion Papers from Monetary Policy Committee Unit, Bank of England Contact information at EDIRC.
Bibliographic data for series maintained by Bank of England Website ().