The Chow-Lin method extended to dynamic models with autocorrelated residuals

Abstract

Abstract:I provide a closed-form solution to temporal disaggregation or interpolation models which is both general in terms of dynamic structure of the model (lags of the high-frequency variable) and flexible in terms of autocorrelation of its residual. As for static models, I show that assuming autocorrelated residuals in dynamic models is practically convenient. To illustrate the potential of the solution proposed, I provide an example for quarterly non-financial corporations' capital stock in computers and communication equipment.