Aggregation bias in macro models: does it matter foir the euro area?

Libero Monteforte

No 534, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: The euro area represents a case-study of great institutional relevance for the econometric problem of aggregation bias. The available data can be used to analyze the area either with aggregate or with country-specific models. The choice should be the result of a statistical comparison between the two options, with respect to the specific model. In this paper we suggest a representation of the aggregation error based on unobservable components and explicitly conceived for aggregations over a small number of economies. In the empirical application two alternative models are estimated: the first specifies the main euro countries while the other refers to the whole area. We then evaluate the aggregation error either from the viewpoint of a comparison of the two models with standard methods, or looking at the components of the representation suggested here. Both categories of results indicate non-negligible aggregation errors for the euro area.

Keywords: aggregation bias; euro-area modeling (search for similar items in EconPapers)
JEL-codes: C52 F47 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-ecm and nep-eec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Aggregation bias in macro models: Does it matter for the euro area? (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_534_04

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