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date: 17 February 2020

Abstract and Keywords

This chapter reviews recent developments in the analysis of macroeconomic panel data which typically involve aggregate variables from various countries. In contrast to the large N, small T framework that characterizes microeconomic panels, the two dimensions of a macroeconomic data set are more balanced, often providing a comparable number of time periods and countries (regions). Although this is inconsequential for the analysis based on the linear static panel data framework, it becomes crucial when estimating a dynamic model. A second important feature of macroeconomic data is cross-section dependence among countries. In many cases this dependence cannot be accommodated by a simple function of the geographical distance but also depends on trade relations and the level of economic development. Furthermore, cross-country data often exhibit a much richer pattern of heterogeneity that cannot be represented just by letting the intercept vary across countries. While it is often infeasible to allow for individual specific regression coefficients in a large N, small T panel framework, this may be a reasonable option when analyzing macroeconomic data.

Keywords: panel data, econometrics, macroeconomic panel data, cross-section, economic development, heterogeneity

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