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HETEROGENEOUS DYNAMICS, AGGREGATION, AND THE PERSISTENCE OF ECONOMIC SHOCKS
Author(s) -
MAYORAL LAURA
Publication year - 2013
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12037
Subject(s) - econometrics , persistence (discontinuity) , impulse response , economics , aggregate (composite) , shock (circulatory) , macro , autoregressive model , inflation (cosmology) , aggregate data , impulse (physics) , mathematics , statistics , computer science , physics , medicine , mathematical analysis , materials science , geotechnical engineering , quantum mechanics , theoretical physics , engineering , composite material , programming language
Estimates of shock persistence based on disaggregate or on aggregate data are frequently very different. This article takes a step toward reconciling this apparent disconnect between micro‐ and macro‐based estimates of shock response. It is shown that, although the average of the individual impulse response functions (IRFs) is identical to the aggregate IRF, averages of other popular persistence measures, such as the sum of the autoregressive coefficients among others, tend to be larger the higher the aggregation level. The theoretical results are illustrated with two applications that use U.S. and European inflation data.