Misspecification in dynamic models

M. Forni
Within the class of ARMAX models we consider the effects that omitted explanatory processes have on the dynamic shape and the exogeneity properties of economic relations. We show that, under suitable assumptions, a well defined "misspecified" ARMAX model exists and is unique. The parameters of this model depend on the joint covariance structure of the omitted and the included variables. We completely characterize the properties of the misspecified model when no restrictions are imposed on...