Most of the empirical literature inappropriately applies Hendry’s (1995) mean lag formula – which he derived for first order autoregressive distributed lag models under the assumption of a homogeneous long-run equilibrium – to error correction models that have complex lag structures and lack long-run homogeneity. We derive an expression for the mean lag in general error correction models without imposing the assumption of a homogeneous equilibrium. In addition, we quantify the bias due to the incorrect use of Hendry’s (1995) formula.
Mean lag in general error correction models / Fuleki, Peter; Ventura, Luigi. - In: ECONOMICS LETTERS. - ISSN 0165-1765. - STAMPA. - 143:(2016), pp. 107-110. [10.1016/j.econlet.2016.03.028]
Mean lag in general error correction models
VENTURA, Luigi
2016
Abstract
Most of the empirical literature inappropriately applies Hendry’s (1995) mean lag formula – which he derived for first order autoregressive distributed lag models under the assumption of a homogeneous long-run equilibrium – to error correction models that have complex lag structures and lack long-run homogeneity. We derive an expression for the mean lag in general error correction models without imposing the assumption of a homogeneous equilibrium. In addition, we quantify the bias due to the incorrect use of Hendry’s (1995) formula.File | Dimensione | Formato | |
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