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Working Paper 2003-045B

"A Common Model Approach to Macroeconomics: Using Panel Data to Reduce Sampling Error"
by William T. Gavin, and Athena T. Theodorou

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 macro-dynamic behavior 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 supports the hypothesis that many industrialized nations have similar macroeconomic dynamics.

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Category > Applied Microeconomics
Category > Monetary Policy/Macroeconomics
Author > William T. Gavin
Research Papers and Publications: JEL Code > C32
Research Papers and Publications: JEL Code > C33
Research Papers and Publications: JEL Code > C53
Research Papers and Publications: JEL Code > E17