Seasonality, sometimes referred to as seasonal variation, is common in economic time series. The time series variables may change in a cyclical pattern with time. This cyclical pattern is termed…
Autoregressive Integrated Moving Average (ARIMA) models are often used for forecasting purposes. These models for time series data have been observed to provide accurate forecasts. Additionally, these models allow dynamic…
The Sargan Test of Overidentifying Restrictions is applied to check the validity of the instruments used in simultaneous equation models. As the name suggests, it is applicable to overidentified model…
The Two-Stage Least Squares or 2SLS is used to estimate simultaneous equation models or system of equations. Moreover, 2SLS uses a single equation approach. That is, each equation in the…
The Durbin-Wu-Hausman Test of Endogeneity is used to determine whether the endogenous regressors in a simultaneous equation model are truly endogenous. Simultaneous equation models include both endogenous and exogenous variables.…
The VAR-VECM Goodness of fit can be analyzed using similar methods. After estimating Vector Autoregressive (VAR) or Vector Error Correction Mechanism (VECM), it is essential to assess how well the…
The Vector Error Correction Mechanism (VECM) is estimated in the presence of cointegration among the system of variables. It allows us to estimate short-run as well as long-run coefficients. Using…
Vector Error Correction Mechanism (VECM) models are a special application of VAR or Vector Autoregressive Models. The specification of VECM models involves the introduction of error correction terms into the…
Impulse Response Functions or IRFs are used to study the effects of shocks or impulses in a VAR or VECM system. It traces out one unit or one standard deviation…
Information Criteria are used to compare and choose among different models with the same dependent variable. Akaike Information Criterion (AIC) and Schwarz or Bayesian Information Criterion (SIC or BIC) are…
The Wu-Hausman Test can be used to determine whether the Fixed Effects Model or Random Effects Model is more appropriate. To apply this test, we need to estimate both the…
The Breusch-Pagan Lagrange Multiplier Test is used to determine whether random effects are significant in panel data models. On the other hand, the Hausman Test is used to choose between…
The usual Goodness-of-fit statistics such as R-square and Adjusted R-square are not applicable in the case of Qualitative Response models. This is because the Ordinary Least Squares method of estimation…
The Standard Error of an estimate is the measure of the standard deviation of that coefficient. It helps to determine the reliability or precision of a coefficient estimated by the…
