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15 Estimation of Dynamic Causal Effects

It sometimes is of interest to know the size of current and future reaction of \(Y\) to a change in \(X\). This is called the dynamic causal effect on \(Y\) of a change in \(X\). This Chapter we discusses how to estimate dynamic causal effects in R applications, where we investigate the dynamic effect of cold weather in Florida on the price of orange juice concentrate.

The discussion covers:

  • estimation of distributed lag models
  • heteroskedasticity- and autocorrelation-consistent (HAC) standard errors
  • generalized least squares (GLS) estimation of ADL models

To reproduce code examples, install the R packages listed below beforehand and make sure that the subsequent code chunk executes without any errors.

  • AER (Kleiber & Zeileis, 2017)
  • dynlm (Zeileis, 2016)
  • nlme (Pinheiro, Bates, & R-core, 2018)
  • orcutt (Spada, 2018)
  • quantmod (Ryan & Ulrich, 2018)
  • stargazer (Hlavac, 2018)
library(AER)
library(quantmod)
library(dynlm)
library(orcutt)
library(nlme)
library(stargazer)

References

Kleiber, C., & Zeileis, A. (2017). AER: Applied Econometrics with R (Version 1.2-5). Retrieved from https://CRAN.R-project.org/package=AER

Zeileis, A. (2016). dynlm: Dynamic Linear Regression (Version 0.3-5). Retrieved from https://CRAN.R-project.org/package=dynlm

Pinheiro, J., Bates, D., & R-core. (2018). nlme: Linear and Nonlinear Mixed Effects Models (Version 3.1-137). Retrieved from https://CRAN.R-project.org/package=nlme

Spada, S. (2018). orcutt: Estimate Procedure in Case of First Order Autocorrelation (Version 2.3). Retrieved from https://CRAN.R-project.org/package=orcutt

Ryan, J. A., & Ulrich, J. M. (2018). quantmod: Quantitative Financial Modelling Framework (Version 0.4-13). Retrieved from https://CRAN.R-project.org/package=quantmod

Hlavac, M. (2018). stargazer: Well-Formatted Regression and Summary Statistics Tables (Version 5.2.2). Retrieved from https://CRAN.R-project.org/package=stargazer