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AR Model (Quantitative Methods)

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  • This topic has 2 replies, 2 voices, and was last updated Mar-18 by RoyD.
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  • RoyD
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    Forum Level 1 Summer Associate
    17 Mar 2018 at 2:38 am
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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?

    Stuj79
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    Forum Level 2 Associate
    17 Mar 2018 at 4:50 am
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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.

    RoyD
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    17 Mar 2018 at 3:47 pm
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    Oh ok. That might make sense since they were from two different chapters.

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