Many macroeconomic relationships are dynamic in nature in that they include at least one lagged dependent variable among the regressors: yit = _yi, t-1 + xit __+ uit i = 1,. . .,N t = 1,. . .,T (10.1) where _ is a scalar, x_it is 1 _ K and _ is K _ 1. The index i denotes countries, regions, firms, banks, and so on, while the index t denotes time. Some early examples include Islam (1995) on empirical growth models, Attanasio et al. (2000) on the relationship between saving, growth and investment, to mention a few.
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