I am very grateful to the editor and three anonymous referees. I am also indebted to Manuel Arellano, Lola Gadea, Albert Marcet, Enrique Sentana, and participants in seminars at the Universities of Harvard, MIT, Glasgow, Southampton, Pompeu Fabra, CEMFI, and IAE. Financial support from the Fundación Ramón Areces, the Spanish Ministry of Education through grant ECO2011-25293, the AXA research fund, and Recercaixa is gratefully acknowledged. The usual disclaimer applies. Please address correspondence to: Laura Mayoral, Department of Economics, Institute for Economic Analysis, Campus UAB-08193 Bellaterra, Barcelona, Spain. Phone: +34-935-806-612. Fax: +34-935-801-452. E-mail: firstname.lastname@example.org.
HETEROGENEOUS DYNAMICS, AGGREGATION, AND THE PERSISTENCE OF ECONOMIC SHOCKS
Article first published online: 25 OCT 2013
© (2013) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
International Economic Review
Volume 54, Issue 4, pages 1295–1307, November 2013
How to Cite
MAYORAL, L. (2013), HETEROGENEOUS DYNAMICS, AGGREGATION, AND THE PERSISTENCE OF ECONOMIC SHOCKS. International Economic Review, 54: 1295–1307. doi: 10.1111/iere.12037
- Issue published online: 25 OCT 2013
- Article first published online: 25 OCT 2013
- Manuscript Revised: JUN 2012
- Manuscript Received: SEP 2010
- Fundación Ramón Areces
- Spanish Ministry of Education. Grant Number: ECO2011-25293
- AXA research fund
Estimates of shock persistence based on disaggregate or on aggregate data are frequently very different. This article takes a step toward reconciling this apparent disconnect between micro- and macro-based estimates of shock response. It is shown that, although the average of the individual impulse response functions (IRFs) is identical to the aggregate IRF, averages of other popular persistence measures, such as the sum of the autoregressive coefficients among others, tend to be larger the higher the aggregation level. The theoretical results are illustrated with two applications that use U.S. and European inflation data.