A hearing aid comprising a time domain codec. The codec comprises a decoder adapted to generate a decoded output signal based on an input quantization index and an encoder for generating an output quantization index based on an input signal, said encoder comprising said decoder and a predictor receiving an excitation signal derived from said decoder output signal and outputting a prediction signal. The output quantization index is determined by repeated decoding of the quantization indices in order to minimize the error between the input signal and the prediction signal, and the predictor uses a recursive autocorrelation estimate for the error minimization. The invention further provides a method of encoding an audio signal.