Suppose i have regression model as-
gdp = a+ bx+ c(z/gdp)+ e
Here x is a vector of explanatory variables. z/gdp is one of my control variables. In this regression equation, GDP lies in both side and my data is in Time Series. There is obvious issue is estimating this equation. How to rectify it for estimation ? Can i use one period lag of z/gdp to overcome this issue. ?
I don't think your model makes sense. Why is z/gdp in the model instead of just z? If you do a little algebra on your model the actual model has a function of gdp on the lhs. I don't know what function because you give no information on your variables, If say your eqn is z=ax +by nobody can really help because there is no real information. David Booth.
David Eugene Booth Sir my z variable is the total government revenue which is ratio to the GDP. It is very essential variable for my study.
Hi,
In my opinion, you can perform a linear regression without problem (since the equation is linear in terms of parameters). The problem however, lies in the forecast of GDP since the equation is non linear in terms of GDP. I attached here an idea that might help in the resolution of the problem, regardless on the interpretation of results.
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