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A common model approach to macroeconomics: using panel data to reduce sampling error
Author(s) -
Gavin William T.,
Theodorou Athena T.
Publication year - 2005
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.954
Subject(s) - economics , econometrics , macroeconomic model , macroeconomics , core (optical fiber) , variety (cybernetics) , panel data , set (abstract data type) , empirical research , computer science , statistics , telecommunications , mathematics , artificial intelligence , programming language
Abstract Is there a common model inherent in macroeconomic data? Macroeconomic theory suggests that market economies of various nations should share many similar dynamic patterns; as a result, individual country empirical models, for a wide variety of countries, often include the same variables. Yet, empirical studies often find important roles for idiosyncratic shocks in the differing macroeconomic performance of countries. We use forecasting criteria to examine the macrodynamic behaviour of 15 OECD countries in terms of a small set of familiar, widely used core economic variables, omitting country‐specific shocks. We find this small set of variables and a simple VAR ‘common model’ strongly support the hypothesis that many industrialized nations have similar macroeconomic dynamics. Copyright © 2005 John Wiley & Sons, Ltd.