Topic 14: Dynamic Econometric Models Flashcards Preview

ECON2271 Business Econometrics > Topic 14: Dynamic Econometric Models > Flashcards

Flashcards in Topic 14: Dynamic Econometric Models Deck (9)
Loading flashcards...
1

What is a distributed lag model?

Lagged values of the regressors as regressors

2

What is a model which includes the lagged regressant as a regressor?

Autoregressive, because it includes the error

3

What methods can resolve an infinite lag model?

-Ad hoc estimation

-Koych approach

-How do we apply? In practise we don't ever actually have to deal with an infinite lag

4

How can one figure out the best lag model ad hoc?

Just keep on adding lags until the new coefficients become unsignificant

5

What is the Koyck approach?

Resolves infinite lag models.

Assumes all the Bare of the same sign

The size of the slope coefficient declines geometrically

so: Bk = B0λk where λ is the rate of decline of the distributed lag

1-λ is the speed of adjustment

if λ is small, Y adjusts quickly to changes in Xi 

 

6

Show how models are transformed in the Koyck procedure

Yt = ⍺ + B0Xt + B0λXt-1 + B0λ2Xt-2 + ... + ut

Yt-1 = ⍺ + B0Xt-1 + B0λXt-2 + B0λ2Xt-2+ ... + ut-1

So: Yt - λYt-1 = ⍺(1 - λ) + B0Xt + ut - λut-1

So: Yt = ⍺(1 - λ) + B0Xt + λYt-1 + vt 

7

Is OLS appropriate for the Koyck aproach?

No, as we have a stochastic regressor (the regressant included as a lagged regressor).

IV, ML ect are reccomended instead.

Otherwise one can attempt to find a proxy for Yt-1 that is uncorrelated with vt, known as an instrument variable

8

How do we test for autocorrelation in autoregressive models?

Durbin h test

9

Explain the durbin h test

Yt = ⍺ + ⍺1Xt + ⍺2Yt-1

vt = ρvt-1 + εt

ρ^ =  1 - d/2

Does not matter how many X variables or lagged Y's, only variance of Yt-1 coefficient

for large n, where nVar(⍺2) < 1