To Pool or to Aggregate? Tests with a Dynamic Panel Macroeconometric Model of Australian State Labor Markets

Kausik Chaudhuri and Jeffrey Sheen

The B.E. Journal of Macroeconomics, 2007, vol. 7, issue 1, 37

Abstract: We construct a dynamic error correction model of the Australian labor market using a macroeconomic panel across seven states from 1972:3 to 1999:1. Medium-run equilibrium estimates support a real wage-productivity gap and an unemployment gap. The dynamic short-run estimates support expectations-augmented Phillips curves for wages and prices, and demand-led employment growth. We compare three procedures - pooled, aggregate and mean group estimates. Considerable heterogeneity existed across states in the pooled procedure, and state-level variables had a significant impact in the aggregate procedure. Out-of-sample aggregate forecasting for the pooled, aggregate and mean group procedures suggests that the pooled one performs best.

Keywords: panel cointegration; panel macroeconometric modeling; Australian state labor markets; aggregation (search for similar items in EconPapers)
Date: 2007
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DOI: 10.2202/1935-1690.1365

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