On the econometrics of the Koyck model
AbstractThe geometric distributed lag model, after applicationof the so-called Koyck transformation, is often used to establishthe dynamic link between sales and advertising. This year, theKoyck model celebrates its 50th anniversary.In this paper we focus on the econometrics of this popular model,and we show that this seemingly simple model is a little more complicated than we always tend to think. First, the Koyck transformation entails a parameter restriction, which should not be overlooked for efficiency reasons. Second, the t-statistic for the parameter for direct advertising effects has a non-standard distribution. We provide solutions to these two issues.For the monthly Lydia Pinkham data, it is shown that variouspractical decisions lead to very different conclusions.
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Bibliographic InfoPaper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number EI 2004-07.
Date of creation: 10 Mar 2004
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sales-advertising relationship; Koyck model;
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