Topic 14: Dynamic Econometric Models Flashcards Preview

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Flashcards in Topic 14: Dynamic Econometric Models Deck (9)
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What is a distributed lag model?

Lagged values of the regressors as regressors


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

Autoregressive, because it includes the error


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


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

Just keep on adding lags until the new coefficients become unsignificant


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 



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 


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


How do we test for autocorrelation in autoregressive models?

Durbin h test


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