class13-642-08

Class13-642-08 - Econ 642 Monday May 12 class 13 Econ 642 Monday May 12 class 13 Robert de Jong1 1 Department of Economics Ohio State University

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Econ 642, Monday May 12, class 13 Econ 642, Monday May 12, class 13 Robert de Jong 1 1 Department of Economics Ohio State University Robert de Jong Econ 642, Monday May 12, class 13
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Econ 642, Monday May 12, class 13 AR(1) process x t = ρ 1 x t - 1 + e t : for stability, | ρ 1 | < 1 is needed Var ( x t ) = Var ( ρ 1 x t - 1 + e t ) = ρ 2 1 Var ( y t - 1 ) + σ 2 so Var ( y t ) = σ 2 / ( 1 - ρ 2 1 ) Robert de Jong Econ 642, Monday May 12, class 13
Background image of page 2
Econ 642, Monday May 12, class 13 Highly persistent series in regression analysis y t = y t - 1 + e t random walk Var ( y t ) = Var ( e t ) + Vare t - 1 ) + ... + Var ( e 1 ) = σ 2 t Variance explodes Figure 11.1: picture of a random walk Robert de Jong Econ 642, Monday May 12, class 13
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Random walk, I(1), or unit root process y t = y t - 1 + e t Random walk with drift: y t = α 0 + y t - 1 + e t First difference Δ y t is stationary In the presence of unit roots, usual t-values and tests may not be correct! Robert de Jong
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/17/2008 for the course ECON 642 taught by Professor De jong during the Spring '08 term at Ohio State.

Page1 / 14

Class13-642-08 - Econ 642 Monday May 12 class 13 Econ 642 Monday May 12 class 13 Robert de Jong1 1 Department of Economics Ohio State University

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online