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The B.E. Journal of Macroeconomics

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1935-1690
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To Pool or to Aggregate? Tests with a Dynamic Panel Macroeconometric Model of Australian State Labor Markets

Kausik Chaudhuri1 / Jeffrey R Sheen2

1Indira Gandhi Institute of Developmental Research,

2University of Sydney,

Citation Information: The B.E. Journal of Macroeconomics. Volume 7, Issue 1, ISSN (Online) 1935-1690, DOI: 10.2202/1935-1690.1365, January 2007

Publication History

Published Online:
2007-01-15

We construct a dynamic error correction model of the Australian labor market using a macroeconomic panel across seven states from 1972:3 to 1999:1. Medium-run equilibrium estimates support a real wage-productivity gap and an unemployment gap. The dynamic short-run estimates support expectations-augmented Phillips curves for wages and prices, and demand-led employment growth. We compare three procedures – pooled, aggregate and mean group estimates. Considerable heterogeneity existed across states in the pooled procedure, and state-level variables had a significant impact in the aggregate procedure. Out-of-sample aggregate forecasting for the pooled, aggregate and mean group procedures suggests that the pooled one performs best.

Keywords: panel cointegration; panel macroeconometric modeling; Australian state labor markets; aggregation

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