A BEJM Topics article.

Abstract

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.

Submitted: September 2, 2005 · Accepted: November 14, 2006 · Published: January 15, 2007

Recommended Citation

Chaudhuri, Kausik and Sheen, Jeffrey R. (2007) "To Pool or to Aggregate? Tests with a Dynamic Panel Macroeconometric Model of Australian State Labor Markets," The B.E. Journal of Macroeconomics: Vol. 7 : Iss. 1 (Topics), Article 1.
Available at: http://www.bepress.com/bejm/vol7/iss1/art1