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Error-correction modelling in discrete and continuous time

Author

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  • ten Cate, Arie
  • Franses, Philip Hans

Abstract

This paper studies the model equation YTÂ =Â [lambda]YTÂ -Â 1Â +Â [alpha]0XTÂ +Â [alpha]1XTÂ -Â 1 and its error-correction equivalent as a temporal aggregate of an underlying true equation in continuous time. Given a stylized fact about [alpha]0Â /Â [alpha]1 we find that this underlying equation is not a Koyck partial adjustment model, but again an error-correction model. An illustration is given.

Suggested Citation

  • ten Cate, Arie & Franses, Philip Hans, 2008. "Error-correction modelling in discrete and continuous time," Economics Letters, Elsevier, vol. 101(2), pages 140-141, November.
    • Handle: RePEc:eee:ecolet:v:101:y:2008:i:2:p:140-141
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    References listed on IDEAS

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    1. Gerard J. Tellis & Philip Hans Franses, 2006. "Optimal Data Interval for Estimating Advertising Response," Marketing Science, INFORMS, vol. 25(3), pages 217-229, 05-06.
    2. Philip Hans Franses, 2004. "Fifty years since Koyck (1954)," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 58(4), pages 381-387, November.
    3. de Groot, E.A. & Franses, Ph.H.B.F., 2005. "Real time estimates of GDP growth," Econometric Institute Research Papers EI 2005-01, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    4. Phillips, P C B, 1991. "Error Correction and Long-Run Equilibrium in Continuous Time," Econometrica, Econometric Society, vol. 59(4), pages 967-980, July.
    5. Arie ten Cate, 2004. "Refinement of the partial adjustment model using continuous-time econometrics," CPB Discussion Paper 41, CPB Netherlands Bureau for Economic Policy Analysis.
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