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Investigating the advertising-sales relationship in the Lydia Pinkham data: a bootstrap approach

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Jae H. Kim

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Abstract

The dynamic relationship between advertising and sales in the annual Lydia Pinkham data is re-evaluated. Past studies have found a feedback system, although one-way causality from advertising to sales is expected. The bootstrap method is used in this paper as an alternative to the asymptotic method exclusively adopted by past studies. The impulse response analysis based on bivariate autoregressive (AR) model is conducted. Bootstrap-after-bootstrap confidence intervals on impulse responses provide evidence that sales do not cause advertising, contrary to the findings of past studies. Comparison of bootstrap-after-bootstrap prediction intervals calculated from univariate and bivariate AR models further supports this finding. Overall, this paper finds evidence of one-way causality from advertising to sales.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 37 (2005)
Issue (Month): 3 (February)
Pages: 347-354
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Handle: RePEc:taf:applec:v:37:y:2005:i:3:p:347-354

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References listed on IDEAS
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  1. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  2. Eichenbaum, Martin & Evans, Charles L, 1995. "Some Empirical Evidence on the Effects of Shocks to Monetary Policy on Exchange Rates," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 975-1009, November. [Downloadable!] (restricted)
  3. Jeremy Berkowitz & Lutz Kilian, 1996. "Recent developments in bootstrapping time series," Finance and Economics Discussion Series 96-45, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  4. Ashley, R & Granger, C W J & Schmalensee, R, 1980. "Advertising and Aggregate Consumption: An Analysis of Causality," Econometrica, Econometric Society, vol. 48(5), pages 1149-67, July. [Downloadable!] (restricted)
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  1. José Casals Carro & Miguel Jerez Méndez & Sonia Sotoca López, 2006. "Decomposition of state-space Model with inputs: The theory and an application to estimate the ROI of advertising," Documentos del Instituto Complutense de Análisis Económico 0602, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales. [Downloadable!]
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