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Signs of Impact Effects in Time Series Regression Models

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  • M. Hashem Pesaran
  • Ron P. Smith

Abstract

In this paper we consider the problem of interpreting the signs of the estimated coefficients in multivariate time series regressions where the regressors are correlated. Using a continuous time model, we argue that focussing on the signs of individual coefficients in such regressions could be misleading and argue in favour of allowing for the indirect effects that arise due to the historical correlations amongst the regressors. For estimation from discrete time data we show that the sign of the total impact, including the direct and indirect effects, of a regressor can be obtained using a simple regression that only includes the regressor of interest.

Suggested Citation

  • M. Hashem Pesaran & Ron P. Smith, 2013. "Signs of Impact Effects in Time Series Regression Models," CESifo Working Paper Series 4433, CESifo.
    • Handle: RePEc:ces:ceswps:_4433
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    References listed on IDEAS

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    1. Hashem Pesaran, M. & Smith, Ron P., 2016. "Counterfactual analysis in macroeconometrics: An empirical investigation into the effects of quantitative easing," Research in Economics, Elsevier, vol. 70(2), pages 262-280.
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    3. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    4. Peter E. Kennedy, 2005. "Oh No! I Got the Wrong Sign! What Should I Do?," The Journal of Economic Education, Taylor & Francis Journals, vol. 36(1), pages 77-92, January.
    5. McAleer, Michael & Pagan, Adrian & Visco, Ignazio, 1986. "A further result on the sign of restricted least-squares estimates," Journal of Econometrics, Elsevier, vol. 32(2), pages 287-290, July.
    6. Leamer, Edward E., 1975. "A result on the sign of restricted least-squares estimates," Journal of Econometrics, Elsevier, vol. 3(4), pages 387-390, November.
    7. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
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    7. Hashem Pesaran, M. & Smith, Ron P., 2016. "Counterfactual analysis in macroeconometrics: An empirical investigation into the effects of quantitative easing," Research in Economics, Elsevier, vol. 70(2), pages 262-280.
    8. Kamiar Mohaddes & Mehdi Raissi, 2014. "Does Inflation Slow Long-Run Growth in India?," Cambridge Working Papers in Economics 1440, Faculty of Economics, University of Cambridge.
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    13. Sahar Bahmani & Jeremy Toms, 2015. "Assessing the Effect of Quantitative Easing on Foreign Direct Investment in Brazil," The American Economist, Sage Publications, vol. 60(2), pages 176-182, September.
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    15. Sadeghi Amroabadi, Behrouz, 2022. "Analyzing the Asymmetric Cumulative Effects of Rentier State on Income Inequality in Mena Countries," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 9(3), pages 113-146, December.
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    17. Mary Everett & Vahagn Galstyan, 2020. "Bilateral cross-border banking and macroeconomic determinants," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(4), pages 921-944, November.
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    More about this item

    Keywords

    regression coefficients; impact effects;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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