Topic 14: Dynamic Econometric Models Flashcards Preview

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Flashcards in Topic 14: Dynamic Econometric Models Deck (9)
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1
Q

What is a distributed lag model?

A

Lagged values of the regressors as regressors

2
Q

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

A

Autoregressive, because it includes the error

3
Q

What methods can resolve an infinite lag model?

A
  • Ad hoc estimation
  • Koych approach
  • How do we apply? In practise we don’t ever actually have to deal with an infinite lag
4
Q

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

A

Just keep on adding lags until the new coefficients become unsignificant

5
Q

What is the Koyck approach?

A

Resolves infinite lag models.

Assumes all the Biare 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
Q

Show how models are transformed in the Koyck procedure

A

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
Q

Is OLS appropriate for the Koyck aproach?

A

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
Q

How do we test for autocorrelation in autoregressive models?

A

Durbin h test

9
Q

Explain the durbin h test

A

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