Consider the following equation for household consumption expenditure: Consmptn= ₀+ ₁Inc + ₂Consmptn_-1+ u
Where 'Consmptn' measures the monthly consumption expenditure of a household, 'Inc' measures household income and 'Consmptn_-1' is the consumption expenditure in the previous month. Consmptn_-1 is a _____ variable.

Question

Consider the following equation for household consumption expenditure: Consmptn=

₀+

₁Inc +

₂Consmptn_-1+ u
Where 'Consmptn' measures the monthly consumption expenditure of a household, 'Inc' measures household income and 'Consmptn_-1' is the consumption expenditure in the previous month. Consmptn_-1 is a _____ variable.

Quizplus · Accepted Answer

The variable Consmptn_-1 is lagged dependent, as it measures the consumption expenditure in the previous month and is dependent on the consumption behavior of the household in that period. It cannot be exogenous as it is not independent of the model and is also not a binary or proxy variable.

Consider the Following Equation for Household Consumption Expenditure: Consmptn=