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One size does not fit all… panel data: Bayesian model averaging and data poolability

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  • Desbordes, Rodolphe
  • Koop, Gary
  • Vicard, Vincent

Abstract

We show in this paper why researchers ought to pay particular attention to the issues of model uncertainty and data poolability in their panel data applications. We focus on the identification of robust determinants of current account balances (CABs). Applying Bayesian Model Averaging, we adopt a flexible modelling approach to highlight that (i) some determinants have limited relevance when accounting for model uncertainty; (ii) slope homogeneity is unlikely to be a valid assumption; iii) cross-sectional and time-series relationships can diverge. We explain why estimating cross-sectional estimates is valuable, even in the potential presence of an omitted variable bias, and suggest a way for assessing the effects of unobserved country heterogeneity.

Suggested Citation

  • Desbordes, Rodolphe & Koop, Gary & Vicard, Vincent, 2018. "One size does not fit all… panel data: Bayesian model averaging and data poolability," Economic Modelling, Elsevier, vol. 75(C), pages 364-376.
    • Handle: RePEc:eee:ecmode:v:75:y:2018:i:c:p:364-376
    DOI: 10.1016/j.econmod.2018.07.009
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    9. Florian Morvillier, 2018. "On the impact of the launch of the euro on EMU macroeconomic vulnerability," EconomiX Working Papers 2018-51, University of Paris Nanterre, EconomiX.
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    More about this item

    Keywords

    Bayesian model averaging; Current account; Heterogeneity; Panel data; Poolability;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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