Solved

Consider the Following Model Yt = β0 + β1Xt

Question 10

Essay

Consider the following model Yt = β0 + β1Xt + β2Xt-1 + β3Yt-1 + ut,where Xt is strictly exogenous.Show that by imposing the restriction Consider the following model Yt = β0 + β1Xt + β2Xt-1 + β3Yt-1 + ut,where Xt is strictly exogenous.Show that by imposing the restriction ,you can derive the following so-called Error Correction Mechanism (ECM)model △Yt = β0 + β1△Xt - θ(Y - X)t-1 + ut where θ = β1 + β2.What is the short-run (impact)response of a unit increase in X? What is the long-run solution? Why do you think the term in parenthesis in the above expression is called ECM? ,you can derive the following so-called Error Correction Mechanism (ECM)model
△Yt = β0 + β1△Xt - θ(Y - X)t-1 + ut
where θ = β1 + β2.What is the short-run (impact)response of a unit increase in X? What is the long-run solution? Why do you think the term in parenthesis in the above expression is called ECM?

Correct Answer:

verifed

Verified

Starting with Yt = β0 + β1Xt + β2Xt-1 + ...

View Answer

Unlock this answer now
Get Access to more Verified Answers free of charge

Related Questions

Q4: Volatility clustering<br>A)is evident in most cross-sections.<br>B)implies that

Q5: The DOLS estimator has the following property

Q6: In this case,the Granger causality statistic does

Q9: If Xt and Yt are cointegrated,then the

Q12: The dynamic OLS (DOLS)estimator of the cointegrating

Q13: You have collected quarterly data for the

Q29: The EG-ADF test<br>A)is the similar to the

Q32: Unit root tests<br>A)use the standard normal distribution

Q39: You have collected time series for various

Q50: You can determine the lag lengths in