7Dynamic Econometric Models
7.1 Introduction
The economic theory has some ability to identify long-run relationships between economic variables by equilibrium forces. However, the dynamic specifications in the traditional causal econometric models were not flexible enough to allow them adequately represent structural changes. When it was observed, it was already more frequently out of equilibrium than it is in equilibrium because it often needs to go through a transition stage. The economic theory sometimes is of little help regarding the specification of time lag and dynamic adjustments in the econometric model due to a paucity of dynamic theory.
This chapter is organised as follows. Following the introduction ...
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