Refinement of the partial adjustment model using continuous-time econometrics
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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- McCrorie, J. Roderick & Chambers, Marcus J., 2006.
"Granger causality and the sampling of economic processes,"
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- 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.
- ten Cate, Arie, 1993. "The current period coefficient of polynomial lag distributions," Economic Modelling, Elsevier, vol. 10(4), pages 408-416, October.
- Arie ten Cate, 2002. "Continuous-time modelling in econometrics and engineering - juli 2002," CPB Memorandum 42, CPB Netherlands Bureau for Economic Policy Analysis.
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