A Model of a System of Simultaneous Equations with a Lag Effect for Estimating the Quality of an Advertising Campaign

• This article describes the creation of a more generalized system of simultaneous equations for forecasting the level of sales depending on advertising campaigns on different channels and other factors. RStudio (R programming language) and Google Colab (Python programming language) environments describe the creation of a model based on real data of a product. The Hausman specification test was applied to determine the model estimation method. As a conclusion, the indicators of advertising campaigns turned out to be endogenous variables, which indicates the importance of using the 2MNK method. It was found that the volume of advertising is the cause of the volume of sales according to Granger, which cannot be said about the reverse assumption - the causality of the volume of advertising from sales according to Granger. The ”depth” of lags is also determined, namely, one lag for both advertising channels. The dependence of sales volumes on various factors, including product distribution, the price index, the influence of advertising and its lags, and the influence of competitors’ advertising activities, was evaluated. The coefficients of the resulting more generalized system of simultaneous equations were estimated using the two-step least squares method. All statistical indicators testify to the adequacy of the model. Performance indicators (ROI - return on investment) of advertising campaigns showed that advertising both on television and on the Internet is profitable for the company’s product in question. The relevance of this article lies in the creation of a more general system of simultaneous equations with the inclusion of a product sales forecast model taking into account the influence of advertising.

Subject headings

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

Keyword

model of the system of current equations

lag effect

Hausman test

Granger test

twostage least squares method

Publication and Content Type

ref (subject category)

art (subject category)