4-27-09 - We want to see if my yt is doing anything Look at...

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Economic Statistics – Class Notes – 4/27/09 14. Lagged Dependent Variable (a different model structure) – Use past values of the dependent variable to predict the current value Original Model: WARNING : If the model has autocorrelation, the Durbin Watson test is NO LONGER VALID 15. Autoregressive models – Use lagged values of the dependent variable as the sole independent variables. First order autoregressive model Second Order autoregressive model:
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QUESTION : How many past values should be included? ANSWER : Use a “t” test, adjusted R^2, or an F-test on a subset of variables
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Unformatted text preview: We want to see if my yt is doing anything Look at the t-stat for y(t-2) if not significant, then leave it out Look at the adjust R^2 (the R^2 for use between models) between the 1 st order autoregressive model and the 2 nd order autoregressive model. Autoregressive models are often used in forecasting because you can just use yt and y(t+1) [one period into the future] Problem with these models: they are not theoretical they do well in forecasting values when values do not change...
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This note was uploaded on 06/03/2009 for the course ECON 203 taught by Professor Casler during the Spring '09 term at Allegheny.

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4-27-09 - We want to see if my yt is doing anything Look at...

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