Consider the Koyck (or, for that matter, the adaptive expectations) model given in Eq. (17.4.7), namely, Suppose in the original
Suppose in the original model ut follows the first-order autoregressive scheme ut Ïu1t = Îµt, where Ï is the coefficient of autocorrelation and where Îµt 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»?
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