LinearRegressionwithTimeSeriesData-ku.pdfVIP

Econometrics 2 — Fall 2005 Linear Regression with Time Series Data Heino Bohn Nielsen 1 of 19 Outline (1) Interpretation of Time Series Regressions (2) Assumptions and Results: (a) Consistency Example: AR(1) (b) Unbiasedness and Bias in Dynamic Models Example: AR(1) (c) Asymptotic Distribution (3) Autocorrelation of the Error Term (a) Consequences of autocorrelation (b) Interpretations on residual autocorrelation (c) Tests for no-autocorrelation 2 of 19 Interpretation of Regression Models Consider the linear regression model: 0 y = xβ+ , t= 1,2,...,T.t t t (∗) The interpretation depends on the variables included in x. t If x contains contemporaneously dated variables it is denoted a static regression. t A simple model for y given the past is the autoregressive model: t y = θy + . t t−1 t Shocks to the process () have dynamic effects. t More complicated dynamics in the autoregressive distributed lag (ADL) model: 0 0 y = θ y + xϕ + x ϕ + . t 1 t−1 t 0