# Restriction on parameters 4 2 3 interpretation of 2

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Unformatted text preview: t −1 + εt Remember that this is a restricted model. The unrestricted model is the following ADL(1,1) model: Yt = λ1 + λ2 Yt −1 + λ3 Xt + λ4 Xt −1 + εt What are the restrictions? restriction on parameters: λ4 = −λ2 λ3 interpretation of λ2 if the restriction is valid. If not, no speciﬁc meaning. Can we test that the restrictions hold? 50 / 62 Introduction Time Series and OLS Two Dynamic Models Autocorrelation Assumption C7 Autocorrelation Detection Lagged Dependent Common Factor Test The transformation we made to remove autocorrelation resulted in the following equation Yt = β1 − ρβ1 + ρYt −1 + β2 Xt − ρβ2 Xt −1 + εt Remember that this is a restricted model. The unrestricted model is the following ADL(1,1) model: Yt = λ1 + λ2 Yt −1 + λ3 Xt + λ4 Xt −1 + εt What are the restrictions? restriction on parameters: λ4 = −λ2 λ3 interpretation of λ2 if the restriction is valid. If not, no speciﬁc meaning. Can we test that the restrictions hold? 51 / 62 Introduction Time Series and OLS Two Dynamic Models Autocorrelation Assumption C7 Autocorrelation Detection Lagged Dependent Common Factor Test The transformation we made to remove autocorrelation resulted in the following equation Yt = β1 − ρβ1 + ρYt −1 + β2 Xt − ρβ2 Xt −1 + εt Remember that this is a restricted model. The unrestricted model is the following ADL(1,1) model: Yt = λ1 + λ2 Yt −1 + λ3 Xt + λ4 Xt −1 + εt What are the restrictions? restriction on parameters: λ4 = −λ2 λ3 interpretation of λ2 if the restriction is valid. If not, no speciﬁc meaning. Can we test that the restrictions hold? 52 / 62 Introduction Time Series and OLS Two Dynamic Models Autocorrelation Assumption C7 Autocorrelation Detection Lagged Dependent Common Factor Test The transformation we made to remove autocorrelation resulted in the following equation Yt = β1 − ρβ1 + ρYt −1 + β2 Xt − ρβ2 Xt −1 + εt Remember that this is a restricted model. The unrestricted model is the following ADL(1,1) model: Yt = λ1 + λ2 Yt −1 + λ3 Xt + λ4 Xt −1 + εt What are the restrictions? restriction on parameters: λ4 = −λ2 λ3 interpretation of λ2 if the restriction is valid. If not, no speciﬁc meaning. Can we test that the restrictions hold? 53 / 62 Introduction Time Series and OLS Two Dynamic Models Autocorrelation Assumption C7 Autocorrelation Detection Lagged Dependent Common Factor Test The transformation we made to remove autocorrelation resulted in the following equation Yt = β1 − ρβ1 + ρYt −1 + β2 Xt − ρβ2 Xt −1 + εt Remember that this is a restricted model. The unrestricted model is the following ADL(1,1) model: Yt = λ1 + λ2 Yt −1 + λ3 Xt + λ4 Xt −1 + εt What are the restrictions? restriction on parameters: λ4 = −λ2 λ3 interpretation of λ2 if the restriction is valid. If not, no speciﬁc meaning. Can we test that the restrictions hold? 54 / 62 Introduction Time Series and OLS Two Dynamic Models Autocorrelation Assumption C7 Autocorrelation Detection Lagged Depende...
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## This document was uploaded on 03/12/2014 for the course ECON 202 at University of London University of London International Programmes (Distance Learning).

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