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Polynomial DL (PDL)
Pongsa Pornchaiwiseskul
Faculty of Economics
Chulalongkorn University
(c) Pongsa Pornchaiwiseskul, Faculty of Economics,
Chulalongkorn University
Three components
Auto-Regressive part
Distributed-Lag part
random part
k0
k1
k , pk
Estimation
Step 0 Guess
Step 1 Estimate ( , , ) for
kj
k0
Yt Yt 1 = 0 (1 ) + 0 X t + t t 1
Lag (j)
(c) Pongsa Pornchaiwiseskul, Faculty of Economics,
Chulalongkorn University
= 0 + 0 X t + 0 X t 1 + 2 0 X t 2 + ... + t
= 0 + 0 (1 + L + 2 L2 + ...) X t + t
= 0 + 0 (1 L) 1 X t + t
(1 L)Yt = 0 (1 ) + 0 X t + (1 L) t
j = 0 + 1 j + 2 j 2 + ... + m j m
Yt Yt 1 = 0 (1 ) + 0 X t + t t 1
Yt = 0 (1 ) + Yt 1 + 0 X t + t t 1
11
Yt = 0 + 0 X t + 1 X t 1 + ... + p X t p + t
m << p, j = 0,1,..., p
10
12
Yt = 0 + 0 X t + 1 X t 1 + ... + p X t p + t
Yt = 0 + 0 Z 0t + 1Z1t + 2 Z 2t + ... + m Z mt + t
= 0 + 0 X t
+ ( 0 + 1 + 2 + ... + m ) X t 1
+ ( 0 + 2 1 + 4 2 + ... + 2 m m ) X t 2
+ ( 0 + 3 1 + 9 2 + ... + 3m m ) X t 3
M
+ ( 0 + p 1 + p 2 2 + ... + p m m ) X t p
+t
13
Yt = 0
Z 0t
+ 0 (X t + X t 1 + ... + X t p )
+ 1 (X t 1 + 2 X t 2 + ... + pX t p )
(
(X
+ 2 X t 1 + 4 X t 2 + ... + p 2 X t p
+3
M
3
+
8
+
...
+
X
p
X t p
t 1
t 2
+t
15
Case 1 = 0
Restriction
)
)
+ m X t 1 + 2 m X t 2 + ... + p m X t p
Z mt
)
14
0 1 + 2 + ... + (1) m m = 0
16
Case p +1 = 0
Restriction
0 + ( p + 1) 1 + ( p + 1) 2 2
+ ... + ( p + 1) m m = 0
17
Case 1 = 0, p +1 = 0
Restrictions
0 1 + 2 + ... + (1) m m = 0
0 + ( p + 1) 1 + ( p + 1) 2 2
+ ... + ( p + 1) m m = 0
Effect
starts
from
zero
and
finally
back
to zero. ==> Restricted LS is BLUE
(c) Pongsa Pornchaiwiseskul, Faculty of Economics,
Chulalongkorn University
18