Abstract
Construction of econometric models containing unobserved variables has presented the econometrician with difficult problems because contemporary methodology of these variables demands that they not be ignored, accepted practice has sought to find proxies for them in terms of only observed variables. It is argued that this substitution procedure is unnecessary. By introducing the generalized expectations model representation, explicit treatment of unobserved variables is permitted. This new representation is seen to contain the various econometric proxies as special cases. Furthermore, the generalized expectations representation yields a type of nonlinear state-space model which may be estimated using the techniques already existant in the control theory literature.
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Wall, K.D. (1979). Specification and estimation of econometric models with generalized expectations. In: Bensoussan, A., Lions, J.L. (eds) International Symposium on Systems Optimization and Analysis. Lecture Notes in Control and Information Sciences, vol 14. Springer, Berlin, Heidelberg. https://doi.org/10.1007/BFb0002639
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DOI: https://doi.org/10.1007/BFb0002639
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