Book Description
Autoregressive Distributed Lag Model (ARDL) even though distinguishes between the short run and the long run effect allows both the intercepts and slopes to vary across countries. On the other hand, the static panel estimation such as fixed-effects estimation (FE) cannot distinguish between the short run and the long run behavior. To address the issue of short run heterogeneity as well as long run homogeneity of the estimated coefficients in a panel framework the pooled mean group (PMG) estimator (Pesaran, Shin, & Smith, 1999) has gained popularity in recent days. In this paper, we estimate the bilateral trade balance model for the US vis-à-vis her nineteen OECD trading partners for the period 1973q1-2004q4 using PMG estimator and find that PMG performs better than ARDL, FE, and MG estimators and provides significant and theoretically consistent result.