our sample.<sup>26</sup> We investigate this question by estimating the long-run parameters in (11) using the Pooled Mean Group estimator of Pesaran _et al._ (1999), which restricts some (or all) of the long-run parameters in (11) to be the same across all countries. The validity of these restrictions can then be tested with a standard likelihood ratio ( _LR_ ) test. As our primary interest is in equilibrium credit determined by the _β_<sup>_gdp_</sup> and _β_<sup>_de f_</sup> parameters, we only impose the homogeneity restriction on these two parameters, leaving the effect of the real interest rate, the lending to deposit rate spread and the alternative cost of borrowing in foreign currency which make up the velocity equation unrestricted.<sup>27</sup> These estimates are reported in Table 2.

The Pooled Mean Group estimates of the restricted _β_<sup>_gdp_</sup> and _β_<sup>_de f_</sup> parameters that are reported in Table 2 are, overall, comparable in size to those of the MG estimator. The PMG parameters are, nonetheless, estimated with much greater precision. The standard errors of the MG estimates are about 2.5 and 5 times larger than those of the PMG estimates. Testing the unity restrictions on the PMG estimates of _β_<sup>_gdp_</sup> and _β_<sup>_de f_</sup> , with the smaller standard errors, yields _t−_ statistics of (3.27 _−_ 1)/0.12 = 18.92 and (0.2049 _−_ 1)/0.0679 = _−_ 11.71, indicating that the PMG estimates are also statistically different from 1.

Looking over the remaining unrestricted coefficients in Table 2, it is noticeable that the PMG estimates of the three long-run parameters _β_<sup>_rr_</sup> , _β_<sup>_sprd_</sup> and _β_<sup>_acb_</sup> are substantially different from those obtained using the MG estimator. The sign of the coefficient on the real interest rate ( _β_<sup>ˆ</sup><sup>_rr_</sup> ) is now positive and statistically different from zero. The influence of the lending to deposit rate spread ( _β_<sup>ˆ</sup><sup>_sprd_</sup> ) has increased 50 times and is also statistically significant. The effect of the alternative cost of borrowing in foreign currency has increased about five fold and remains statistically significant at the 5% level. The estimate of the speed of adjustment parameter _α_ under the restricted PMG estimator is now only _−_ 0.02, which is about 8 times smaller in absolute magnitude than the MG estimate reported in Table 1. Additionally, there were four instances where the cross-country restrictions imposed on the _β_<sup>_gdp_</sup> and _β_<sup>_de f_</sup> parameters by the PMG estimator lead to positive estimates of the speed of adjustment parameter, thus violating assumption 2 of Pesaran _et al._ (1999). The above reported differences in the PMG and MG estimates of the unrestricted long-run

> 26Note that this is a different hypothesis than testing whether the MG estimates are equal to unity. We are interested in determining whether restricting the long-run coefficients to be the same across the countries is sensible and supported by the data.

> 27We have also restricted all the long-run equilibrium parameters, which evidently is a stronger restrictions. The PMG estimates under this scenarios are 4.4825, _−_ 0.4160, _−_ 0.0098, _−_ 0.0034, _−_ 0.0142 for _β_<sup>_gdp_</sup> , _β_<sup>_de f_</sup> , _β_<sup>_sprd_</sup> , _β_<sup>_acb_</sup> and _β_<sup>_rr_</sup> , respectively. The _LR−_ statistic is 1085, with 240 degrees of freedom, so this restriction is strongly rejected by the data. Full results are available from the authors.

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