A1127
Title: Incorporating micro data into macro models using pseudo VARs
Authors: Gary Koop - University of Strathclyde (United Kingdom)
Stuart McIntyre - University of Strathclyde (United Kingdom)
James Mitchell - Federal Reserve Bank of Cleveland (United States) [presenting]
Ping Wu - University of Strathclyde (United Kingdom)
Abstract: The purpose is to develop a method to incorporate microdata, available as repeated cross-sections, into macro VAR models to understand the distributional effects of macroeconomic shocks. The method extends existing functional VAR models by ``looking within'' the micro distribution to identify the degree to which specific types of micro agents are affected by the shock. It does so by creating a pseudo-panel from the repeated cross-section and adding these pseudo-individuals into the macro VAR. Jointly modeling the micro and macro data leads to a large (pseudo) VAR, Bayesian methods are used to ensure shrinkage and parsimony. The application revisits a prior study and compares their functional VAR-based distributional impulse response functions with the proposed pseudo VAR-based ones to identify which types of individuals' earnings are most affected by business cycle shocks.
