Gujarati: Basic I III. Topics in Econometrics I 17. Dynamic Econometric I I © The McGraw-Hill
Econometrics, Fourth Models: Autoregressive Companies, 2004 Edition and Distributed-Lag
CHAPTER SEVENTEEN: DYNAMIC ECONOMETRIC MODELS 703
9. Despite the estimation problems, which can be surmounted, the distributed and autoregressive models have proved extremely useful in empirical economics because they make the otherwise static economic theory a dynamic one by taking into account explicitly the role of time. Such models help us to distinguish between short- and long-run response of the dependent variable to a unit change in the value of the explanatory variable(s). Thus, for estimating short- and long-run price, income, substitution, and other elasticities these models have proved to be highly useful.64
10. Because of the lags involved, distributed and or autoregressive models raise the topic of causality in economic variables. In applied work, the Granger causality modeling has received considerable attention. But one has to exercise great caution in using the Granger methodology because it is very sensitive to the lag length used in the model.
11. Even if a variable (X) "Granger-causes" another variable (Y), it does not mean that X is exogenous. We distinguished three types of exogeneity— weak, strong, and super—and pointed out the importance of the distinction.
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