Econometric Analysis of Panel Data: Growth, Convergence, and Econometric Issues, Slides of Econometrics and Mathematical Economics

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Econometric Analysis of Panel Data

10. Dynamic Models and

Nonstationary Panel Data

Growth and Convergence

i,t i,t i,t i,t^1 i,t i,t i,t-1 i,t- i,t 1 i i,t 1 i,t i i,t 1

Y K (A L )

A index of technology K capital stock = I + (1- )K I s Y Investment Savings L labor (1 n )L

α −α

− − −

= δ = = = = = +

Solow - Swan Growth Model

Equilibrium Model for Steady

i,t i i i i,t 1 i,t i i i i i

logY t log Y (1- )g , g =technological growth rate "convergence" parameter; 1- = rate of convergence to steady state Cross country comparisons of convergence rate

= μ + θ + λ (^) − + ε θ = λ λ = λ

State Income

s are the focus of study. (Lee, Pesaran and Smith, "Growth and Convergence in a Multi-Country Empirical Solow Model," Journal of Applied Econometrics, July, 1997. Nerlove, Essays in Panel Data Econometrics, Cambridge U. Press) Docsity.com

Nonstationary Data

Integrated Series

Purchasing Power Parity

i,t i i i,t i,t i,t i,t i

Cross country purchasing power parity hypothesis:

E P

E log of exchange rate country i with U.S.

P log of aggregate consumer expenditure price ratio

Hypothesis of PPP is 1.

Dat

a on numerous countries (large N) and many periods (large T)

Standard simple regressions based on SUR model?

(See Pedroni, P., "Purchasing Power Parity Tests in Cointegrated

Panels," ReStat, Nov, 2001, p. 727 and related cited papers.)

Cointegrated Variables?