Lagged variable models and their estimation

Abstract

The paper discusses the reasons for hypothesizing various kinds of lagged variable models, their characteristics and the appropriate methods for estimating them. In particular, the distributed lag model, the partial adjustment model and the expectation model are explained and the Liviatan and/or Almon's methods are recommended for their estimation. These various models and methods are illustrated by hypothesizing and estimating a consumption function for India using annual time series data for 1950-51 through 1975-76. The short-run and long-run marginal propensities to consume are estimated to be 0.29 and 0.90, respectively.