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Distributed Lags and Dynamic Models

In: Econometrics

Author

Listed:
  • Badi H. Baltagi

    (Syracuse University)

Abstract

Many economic models have lagged values of the regressors in the regression equation. For example, it takes time to build roads and highways. Therefore, the effect of this public investment on growth in GNP will show up with a lag, and this effect will probably linger on for several years. It takes time before investment in research and development pays off in new inventions which in turn take time to develop into commercial products. In studying consumption behavior, a change in income may affect consumption over several periods. This is true in the permanent income theory of consumption, where it may take the consumer several periods to determine whether the change in real disposable income was temporary or permanent. For example, is the extra consulting money earned this year going to continue next year? Also, lagged values of real disposable income appear in the regression equation because the consumer takes into account his life time earnings in trying to smooth out his consumption behavior.

Suggested Citation

  • Badi H. Baltagi, 2011. "Distributed Lags and Dynamic Models," Springer Texts in Business and Economics, in: Econometrics, chapter 0, pages 131-147, Springer.
    • Handle: RePEc:spr:sptchp:978-3-642-20059-5_6
    DOI: 10.1007/978-3-642-20059-5_6
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