Consider the Koyck (or, for that matter, the adaptive expectations) model given in Eq (17 4 7), namely, Suppose in the original model u t follows the first order autoregressive scheme u t Iuml u 1t Icirc micro t , where Iuml is the coefficient of autocorrelation and where Icirc micro t satisfies all the classical OLS assumptions a If Iuml Icirc raquo , can the Koyck model be estimated by OLS b Will the estimates thus obtained be unbiased Consistent Why or why not c How reasonable is it to assume that Iuml Icirc raquo Y (1 ) X Y (1 1)

Question: Consider the Koyck (or, for that matter, the adaptive expectations) model given in Eq. (17.4.7), namely, Suppose in the original model u t follows the

Consider the Koyck (or, for that matter, the adaptive expectations) model given in Eq. (17.4.7), namely,

Suppose in the original model u_t follows the first-order autoregressive scheme u_t ˆ’ Ïu_1ˆ’t = Îµ_t, where Ï is the coefficient of autocorrelation and where Îµ_t satisfies all the classical OLS assumptions.

a. If Ï = Î», can the Koyck model be estimated by OLS?

b. Will the estimates thus obtained be unbiased? Consistent? Why or why not?

c. How reasonable is it to assume that Ï = Î»?

Y-(1-) + X +Y- + (1- -1)

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