If there are T observations to estimate the lagged regression model y_t = β₀ + β₁x_t_{- 1} + ε_t, what is the actual number of observations used to make the forecast for time period T? A) T - 1 B) T + 1 C) 1 - T D) T

Question

Quizplus · Accepted Answer

The lagged regression model includes lagged values of y and x, so we need at least one observation for each of these variables. Thus, we can only use T-1 observations to make the forecast for time period T.

If There Are T Observations to Estimate the Lagged Regression