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I am confused as to the contradicting theories put across in the notes. At one place it says ‘Using a Lagged Dependent Variable as an Independent Variable’ leads to model misspecification.
On the other hand AR models use a lagged dependent variable as an independent variable.
What’s the logic behind using either?
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My understanding is that AR models are for time series data, whereas model msipecification arises from use of a lagged dependent variable as an independent variable in normal cross sectional regression.
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Oh ok. That might make sense since they were from two different chapters.
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