Working Paper Revision

Pooled Bewley Estimator of Long-Run Relationships in Dynamic Heterogenous Panels


Abstract: This paper, using the Bewley (1979) transformation of the autoregressive distributed lag model, proposes a novel pooled Bewley (PB) estimator of long-run coefficients for dynamic panels with heterogeneous short-run dynamics, in the same setting as the widely used Pooled Mean Group (PMG) estimator. Asymptotic normality of the PB estimator is established, and Monte Carlo simulations reveal a good small sample performance of PB compared with existing estimators in the literature, namely PMG, PDOLS and FMOLS. This paper also considers application of two bias-correction methods and a bootstrapping of critical values to conduct inference robust to cross-sectional dependence of errors. An empirical application to the aggregate consumption function taken from the original PMG paper illustrates the importance of the choice of individual estimators in practice.

JEL Classification: C12; C13; C23; C33;

https://doi.org/10.24149/gwp409r1

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Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2023-04-17

Number: 409

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