Your Textbook Used a Distributed Lag Model with Only Current $Y _ { t } = \beta _ { 0 } + \beta _ { 1 } X _ { t } + u _ { t }$

question 28

Essay

Your textbook used a distributed lag model with only current and past values of Xt-1
coupled with an AR(1)error model to derive a quasi-difference model, where the error
term was uncorrelated. (a) Instead use a static model $Y _ { t } = \beta _ { 0 } + \beta _ { 1 } X _ { t } + u _ { t }$ here, where the error term follows an AR(1). Derive the quasi difference form. Explain why in the case of the infeasible GLS estimators you could easily estimate the $\beta s$ by OLS.

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Definitions:

Price Elasticity Of Demand

The ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price; a measure of the responsiveness of buyers to a change in the price of a product or resource.

Percentage Changes

Calculations that measure the degree of change over time, expressed as a percentage to highlight growth or decline in quantitative data.

Price-Elasticity Of Demand

A gauge of the extent to which the amount of a product sought by consumers alters following a modification in its price.

Percentage Change

A mathematical calculation that demonstrates how much a quantity has increased or decreased relative to its previous value, often expressed as a percentage.