Econometrics For Dummies

Chapter 15

Static and Dynamic Models

In This Chapter

Recognizing the difference between static and dynamic models

Identifying and eliminating time trends

Spotting seasonal patterns in data

With time-series data, you obtain measurements on one or more variables captured over time in a given space (a specific country, state, and so on). In some cases, this leads to econometric models with unique characteristics. In this chapter, I provide some examples of regression models using time-series data, and I discuss models that are similar to those used with cross-sectional data (static models) and others that are unique to time-series applications (dynamic models). I also show you how time-series models can be used to estimate trends and seasonality.

Using Contemporaneous and Lagged Variables in Regression Analysis

When you’re using time-series data, you can assume that the independent variables have a contemporaneous (static) or lagged (dynamic) effect on your dependent variable. It depends on how your econometric model assumes that the dependent variable will react:

If it reacts instantaneously ...