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Author:Pesaran, M. Hashem 

Working Paper
A Counterfactual Economic Analysis of COVID-19 Using a Threshold Augmented Multi-Country Model

This paper develops a threshold-augmented dynamic multi-country model (TG-VAR) to quantify the macroeconomic effects of COVID-19. We show that there exist threshold effects in the relationship between output growth and excess global volatility at individual country levels in a significant majority of advanced economies and in the case of several emerging markets. We then estimate a more general multi-country model augmented with these threshold effects as well as long-term interest rates, oil prices, exchange rates and equity returns to perform counterfactual analyses. We distinguish common ...
Globalization Institute Working Papers , Paper 402

Working Paper
A Bias-Corrected Method of Moments Approach to Estimation of Dynamic Short-T Panels

This paper contributes to the GMM literature by introducing the idea of self-instrumenting target variables instead of searching for instruments that are uncorrelated with the errors, in cases where the correlation between the target variables and the errors can be derived. The advantage of the proposed approach lies in the fact that, by construction, the instruments have maximum correlation with the target variables and the problem of weak instrument is thus avoided. The proposed approach can be applied to estimation of a variety of models such as spatial and dynamic panel data models. In ...
Globalization Institute Working Papers , Paper 327

Working Paper
Mean Group Estimation in Presence of Weakly Cross-Correlated Estimators

This paper extends the mean group (MG) estimator for random coefficient panel data models by allowing the underlying individual estimators to be weakly cross-correlated. Weak cross-sectional dependence of the individual estimators can arise, for example, in panels with spatially correlated errors. We establish that the MG estimator is asymptotically correctly centered, and its asymptotic covariance matrix can be consistently estimated. The random coefficient specification allows for correct inference even when nothing is known about the weak cross-sectional dependence of the errors. This is ...
Globalization Institute Working Papers , Paper 349

Working Paper
COVID-19 Time-Varying Reproduction Numbers Worldwide: An Empirical Analysis of Mandatory and Voluntary Social Distancing

This paper estimates time-varying COVID-19 reproduction numbers worldwide solely based on the number of reported infected cases, allowing for under-reporting. Estimation is based on a moment condition that can be derived from an agent-based stochastic network model of COVID-19 transmission. The outcomes in terms of the reproduction number and the trajectory of per-capita cases through the end of 2020 are very diverse. The reproduction number depends on the transmission rate and the proportion of susceptible population, or the herd immunity effect. Changes in the transmission rate depend on ...
Globalization Institute Working Papers , Paper 407

Working Paper
Theory and practice of GVAR modeling

The Global Vector Autoregressive (GVAR) approach has proven to be a very useful approach to analyze interactions in the global macroeconomy and other data networks where both the cross-section and the time dimensions are large. This paper surveys the latest developments in the GVAR modeling, examining both the theoretical foundations of the approach and its numerous empirical applications. We provide a synthesis of existing literature and highlight areas for future research.
Globalization Institute Working Papers , Paper 180

Discussion Paper
Limited-dependent rational expectations models with jumps

This paper develops a Limited-Dependent Rational Expectations (LD-RE) model where the bounds can be fixed for an extended period, but are subject to occasional jumps. In this case, the behavior of the endogenous variable is affected by the agent's expectations about both the occurrence and the size of the jump. The RE solution for the one-sided and two-sided band are derived and shown to encompass the cases of perfectly predictable and stochastically varying bounds examined by earlier literature. We demonstrate that the solution for the one-sided band exists and is unique when the coefficient ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 111

Working Paper
Aggregation in large dynamic panels

This paper investigates the problem of aggregation in the case of large linear dynamic panels, where each micro unit is potentially related to all other micro units, and where micro innovations are allowed to be cross sectionally dependent. Following Pesaran (2003), an optimal aggregate function is derived and used (i) to establish conditions under which Granger's (1980) conjecture regarding the long memory properties of aggregate variables from "a very large scale dynamic, econometric model" holds, and (ii) to show which distributional features of micro parameters can be identified from ...
Globalization Institute Working Papers , Paper 101

Working Paper
Large panel data models with cross-sectional dependence: a survey

This paper provides an overview of the recent literature on estimation and inference in large panel data models with cross-sectional dependence. It reviews panel data models with strictly exogenous regressors as well as dynamic models with weakly exogenous regressors. The paper begins with a review of the concepts of weak and strong cross-sectional dependence, and discusses the exponent of cross-sectional dependence that characterizes the different degrees of cross-sectional dependence. It considers a number of alternative estimators for static and dynamic panel data models, distinguishing ...
Globalization Institute Working Papers , Paper 153

Working Paper
An Augmented Anderson-Hsiao Estimator for Dynamic Short-T Panels

This paper introduces the idea of self-instrumenting endogenous regressors in settings when the correlation between these regressors and the errors can be derived and used to bias-correct the moment conditions. The resulting bias-corrected moment conditions are less likely to be subject to the weak instrument problem and can be used on their own and/or augmented with other available moment conditions (if any) to obtain more efficient estimators. This approach can be applied to estimation of a variety of models such as spatial and dynamic panel data models. This paper focuses on the latter, ...
Globalization Institute Working Papers , Paper 327

Working Paper
Oil prices and the global economy: is it different this time around?

The recent plunge in oil prices has brought into question the generally accepted view that lower oil prices are good for the US and the global economy. In this paper, using a quarterly multi-country econometric model, we first show that a fall in oil prices tends relatively quickly to lower interest rates and inflation in most countries, and increase global real equity prices. The effects on real output are positive, although they take longer to materialize (around 4 quarters after the shock). We then re-examine the effects of low oil prices on the US economy over different sub-periods using ...
Globalization Institute Working Papers , Paper 277

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