Distributed lag model and its Advantages | BSc.CSIT | Simulation and Modeling Distributed Lag Model and advantages of it, Simulation and Modeling Reference Notes Fifth Semester | Third year BSc.CSIT | Tribhuvan University (TU)

Distributed Lag Model
Distributed Lag Model is defined as a type of model that have the property of changing only at fixed interval of time and based on current values of variables on other current values of variables and values that occurred in previous intervals.

In economic studies some economic data are collected over uniform time interval such as a month or year. This model consists of linear algebraic equations that represent continuous system but data are available at fixed points in time.

For example: Mathematical model of national economy

Let,
C=consumption
I=investment
T=Taxes
G=government expenditures
Y=national income
Then
C=20+0.7(Y-T)
I=2+0.1Y
T=0.2Y
Y=C+I+G

All the equation are expressed in billions of rupees. This is static model and can be made dynamic by lagging all the variables as follows

C=20 + 0.7(Y-1 – T-1)
I=2 + 0.1Y-1
T=0.2Y-1
Y=C-1 + I-1 + G-1

Any variable that can be expressed in the form of its current value and one or more previous value is called lagging variable. And hence this model is given the name distributed lag model. The variable in a previous interval is denoted by attaching –n suffix to the variable. Where -n indicate the nth interval.