On the econometrics of the Koyck model
The geometric distributed lag model, after application of the so-called Koyck transformation, is often used to establish the dynamic link between sales and advertising. This year, the Koyck 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 various practical decisions lead to very different conclusions.
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- Andrews, Donald W K & Ploberger, Werner, 1994.
"Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative,"
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"Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis,"
Econometric Society, vol. 64(2), pages 413-430, March.
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- Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
- Carrasco, Marine, 2002. "Misspecified Structural Change, Threshold, and Markov-switching models," Journal of Econometrics, Elsevier, vol. 109(2), pages 239-273, August.
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