On the econometrics of the Koyck model

Philip Hans Franses and Rutger van Oest

No EI 2004-07, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: The geometric distributed lag model, after application of the so-called Koyck transformation, is often used to establish the dynamic link between sales and advertising. This year, the Koyck model celebrates its 50th anniversary.In this paper we focus on the econometrics of this popular model,and we show that this seemingly simple model is a little more complicated than we always tend to think. First, the Koyck transformation entails a parameter restriction, which should not be overlooked for efficiency reasons. Second, the t-statistic for the parameter for direct advertising effects has a non-standard distribution. We provide solutions to these two issues. For the monthly Lydia Pinkham data, it is shown that various practical decisions lead to very different conclusions.

Keywords: Koyck model; sales-advertising relationship (search for similar items in EconPapers)
Date: 2004-03-10
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Citations: View citations in EconPapers (7)

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