"Pooled Bewley Estimator of Long Run Relationships in Dynamic Heterogenous Panels", by Alexander Chudik, M. Hashem Pesaran, and Ron P. Smith, , forthcoming in Econometrics and Statistics, October 2023

Abstract: Using a transformation of the autoregressive distributed lag model due to Bewley, a novel pooled Bewley (PB) estimator of long-run coefficients for dynamic panels with heterogeneous short-run dynamics is proposed. The PB estimator is directly comparable to the widely used Pooled Mean Group (PMG) estimator, and is shown to be consistent and asymptotically normal. Monte Carlo simulations show good small sample performance of PB compared to the existing estimators in the literature, namely PMG, panel dynamic OLS (PDOLS), and panel fully-modified OLS (FMOLS). Application of two bias-correction methods and a bootstrapping of critical values to conduct inference robust to cross-sectional dependence of errors are also considered. The utility of the PB estimator is illustrated in an empirical application to the aggregate consumption function.
JEL Classifications: C12, C13, C23, C33
Key Words: Heterogeneous dynamic panels; I(1) regressors; pooled mean group estimator (PMG), Autoregressive-Distributed Lag model (ARDL), Bewley transform, PDOLS, FMOLS, bias correction, robust inference, cross-sectional dependence.
Full Text: http://www.econ.cam.ac.uk/people-files/emeritus/mhp1/fp23/CPSPooledBewley30Oct2023.pdf