Summary
This paper investigates some of the difficulties of using Almon's technique in the estimation of distributed lags. After a theoretical discussion of the Almon model, formulated both in terms of transformation of the independent variable(s) and as a set of constraints on the parameters, a critical analysis of the conventional criteria for choosing the “best” model (such as goodness of fit, the statistical significance of the individual parameter estimate or their sums, and an analysis of autocorrelation) demonstrates the problems of choosing the appropriate combination of lag length and degree of polynomial.
These problems are illustrated by an empirical example, which re-estimates some equations from an earlier study of financial capital flows in the U.S. balance of payments.
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An earlier and more extensive version of this paper appeared as a Working Paper, [Thomas]. The author is grateful toM.J. Desai andR.W. Farebrother for their comments on that paper. Needless to say, all errors here are the author's responsibility.
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Thomas, J.J. Some problems in the use of Almon's technique in the estimation of distributed lags. Empirical Economics 2, 175–193 (1977). https://doi.org/10.1007/BF01760398
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DOI: https://doi.org/10.1007/BF01760398