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Refinement of the partial adjustment model using continuous-time econometrics

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  • Arie ten Cate

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Abstract

This paper presents some suggestions for the specification of dynamic models. These suggestions are based on the supposed continuous-time nature of most economic processes. In particular, the partial adjustment model -or Koyck lag model- is discussed. The refinement of this model is derived from the continuous-time econometric literature. We find three alternative formulas for this refinement, depending on the particular econometric literature which is used. Two of these formulas agree with an intuitive example. In passing, it is shown that that the continuous-time models of Sims and Bergstrom are closely related. Also the inverse of Bergstrom's approximate analog has been introduced, making use of engineering mathematics. Followed by Error-correction modelling in discrete and continuous time , Economics Letters 101 (2008), pp.140-141 [with Philip Hans Franses]

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Bibliographic Info

Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 41.

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Date of creation: Nov 2004
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Handle: RePEc:cpb:discus:41

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  1. Sims, Christopher A, 1971. "Discrete Approximations to Continuous Time Distributed Lags in Econometrics," Econometrica, Econometric Society, vol. 39(3), pages 545-63, May.
  2. Chambers, Marcus J., 1999. "Discrete time representation of stationary and non-stationary continuous time systems," Journal of Economic Dynamics and Control, Elsevier, vol. 23(4), pages 619-639, February.
  3. McCrorie, J. Roderick & Chambers, Marcus J., 2006. "Granger causality and the sampling of economic processes," Journal of Econometrics, Elsevier, vol. 132(2), pages 311-336, June.
  4. Arie ten Cate, 2002. "Continuous-time modelling in econometrics and engineering - juli 2002," CPB Memorandum 42, CPB Netherlands Bureau for Economic Policy Analysis.
  5. Teles, Paulo & Wei, William W. S., 2000. "The effects of temporal aggregation on tests of linearity of a time series," Computational Statistics & Data Analysis, Elsevier, vol. 34(1), pages 91-103, July.
  6. Bergstrom, A. R., 1988. "The History of Continuous-Time Econometric Models," Econometric Theory, Cambridge University Press, vol. 4(03), pages 365-383, December.
  7. ten Cate, Arie, 1993. "The current period coefficient of polynomial lag distributions," Economic Modelling, Elsevier, vol. 10(4), pages 408-416, October.
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Cited by:
  1. David E. Bloom & David Canning & Gunther Fink, 2009. "Disease and Development Revisited," PGDA Working Papers 4409, Program on the Global Demography of Aging.

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