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Refinement of the partial adjustment model using continuous-time econometrics

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Author Info
Arie ten Cate ()
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 of Sims and Bergstrom.

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 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, 2008), with Philip Hans Franses.

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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Papers 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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Related research
Keywords: dynamical models; dynamics; continuous time; econometrics; partial adjustment; koyck; bergstrom;

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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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. [Downloadable!] (restricted)
  2. McCrorie, J.R. & Chambers, M.J., 2004. "Granger causality and the sampling of economic processes," Discussion Paper 39, Tilburg University, Center for Economic Research. [Downloadable!]
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  3. ten Cate, Arie, 1993. "The current period coefficient of polynomial lag distributions," Economic Modelling, Elsevier, vol. 10(4), pages 408-416, October. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
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