Frist Difference Variables
Posted: Wed Jan 25, 2012 4:51 am
Hi,
I am running a simple Phillips curve model with 3 explanatory variables. As one of these variables is the lag of the dependent variable (inflation, and inflation-1), I have encountered the problem of autocorrelation. I was just wondering if this problem can be solved by first differencing all variables (including the dependent) in the model or does econometric theory not justify this.
I am quite new to this process so any information would be greatly appreciated.
Thanks in advance,
Shane
I am running a simple Phillips curve model with 3 explanatory variables. As one of these variables is the lag of the dependent variable (inflation, and inflation-1), I have encountered the problem of autocorrelation. I was just wondering if this problem can be solved by first differencing all variables (including the dependent) in the model or does econometric theory not justify this.
I am quite new to this process so any information would be greatly appreciated.
Thanks in advance,
Shane