DYNAMIC ECONOMETRIC MODELS
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DYNAMIC ECONOMETRIC MODELS

. Dr. C. Ertuna. DEFINITION. In. Dynamic Econometric Models. time plays a central role. Past (lagged) values of dependent or independent variables are introduced in the model to describe the underlying process. .

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DYNAMIC ECONOMETRIC MODELS




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Presentation on theme: "DYNAMIC ECONOMETRIC MODELS"— Presentation transcript:

Slide1

DYNAMIC ECONOMETRICMODELS

Dr. C. Ertuna

Slide2

DEFINITIONIn Dynamic Econometric Models time plays a central role. Past (lagged) values of dependent or independent variables are introduced in the model to describe the underlying process.

Dr. C. Ertuna

Slide3

TYPES of DYNAMIC MODELSIn

general there are three types of dynamic models:

Distributed Lag Models

: Models that include lagged values of independent variables.

The

Koyck

Transformation

The Almond TransformationAutoregressive Models: Models that include lagged values of dependent variables. The Partial Adjustment ModelThe Adaptive Expectations ModelAutoregressive Distributed Lag Models:

Dr. C. Ertuna

Slide4

REASONS for LAGGED VALUESHabit (Psychological inertia)

Transition / Time to Adjust

Technical or Technological Reasons

causing delay in change.

Institutional Reasons

(such as contracts)

Dr. C. Ertuna

Slide5

USE of DISTRIBUTED LAG MODELSImpact of Advertising

(over several periods) on (current) Sales

Impact of

Safety Training

on

Accidents

.

Impact of Marketing Mix on Market Share.Impact of Air Pollution on Mortality Rate.Dr. C. Ertuna

Slide6

DISTRIBUTED LAG MODELS and NUMBER of LAGS

Too many lags may cause multicollinearity and lost of degrees of freedom. In

general there are two approaches to overcome those problems:

Koyck

Transformation

Almond Transformation

Dr. C. Ertuna

Slide7

Koyck TransformationKoyck assumes geometric decline and same sign in

βs. Following Asteriou

and Hall (

page 206-207

) we can convert infinite distributed lag model with geometrically declining

β

s into following form:

where,

 

Dr. C. Ertuna

Slide8

DISTRIBUTED LAG MODELS and OLS REGRESSION

To estimate Distributed Lag Models OLS Regression can be used.

The results are BLUE as long as the residuals do not exhibit autocorrelation.

Dr. C. Ertuna

Slide9

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END