Contemporaneous aggregation of linear dynamic models in large economies [An article from: Journal of Econometrics]

This digital document is a journal article from Journal of Econometrics, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
In this paper we provide a formal analysis of the effect of linear contemporaneous aggregation, in the sense of averaging, of ARMA processes driven by a common and an idiosyncratic shock, with random coefficients, as the number of microunits goes to infinity. Heterogeneity of the coefficients is described by means of a mild semiparametric specification of their probability distribution. The possibility of long memory and non-stationarity is fully characterized. The different implications, for aggregate behaviour, of the common and idiosyncratic shocks are presented in details. We propose an empirical application where we estimate the cross-sectional distribution of the parameters governing heterogeneous first-order autoregressive processes, based on a real data set.