ECON217_HW_ARMA_Key

ECON217_HW_ARMA_Key - ECON217_HW_ARMA Suggested Solutions...

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Unformatted text preview: ECON217_HW_ARMA Suggested Solutions 1. If a time series {X t } is covariance stationary, what do we know about E(X t ) and COV(X t , X t-k ) for t = 1, ..., T and k = 0, 1, 2, ..? As. E(X t ) denotes the mean of X t . If {X t } is covariance stationary, E(X t )is time invariant; i.e. E(X t ) equals to a constant, say , for all t. COV(X t , X t-k ) is the covariance between X t and X t-k . For k = 0, we have the variance of X t (i.e. COV(X t , X t )). If {X t } is covariance stationary, COV(X t , X t-k ) is time invariant, and it depends on the distance k between X t and X t-k but not the time t at which it is measured. (k) is usually used to represent COV(X t , X t-k ); a notation that highlights the dependence on k. 2. If {X t } is a white noise process, what do we know about E(X t ), and COV(X t , X t-k ) for for t = 1, ..., T and k = 0, 1, 2, ..? As. Usually, a white noise process is referred to a zero mean white noise process; that is, E(X t ) = 0 for all t. For k = 0, COV(X t , X t-k ) = 2 , a standard notation for the variance of a random variable. For k 0, COV(X t , X t-k ) = 0. This is, a white noise series is a sequence of zero mean, constant variance and uncorrelated random variables. 3. Define and compare the autocorrelation function and the partial autocorrelation function of a stationary time series. As. For a time series {X t }, the Autocorrelation Function, (k), is defined as (k) = (k)/ (0), where (k) is COV(X t , X t-k ). It can be shown that (k) = (-k) and (k) 1, (0)= 1. Partial Autocorrelation Function, kk , is defined by the following regression equation: X t = 1k X t-1 + ... + kk X t-k + t . Note that, depends on the true stochastic property of X t , t is not necessarily a white noise process. Both the autocorrelation function and partial autocorrelation function measure the association of the variables in a time series. In contrast to (k), kk eliminates the effects of the intervening values X t-1 through X t-k+1. 4. Suppose Y t follows Y t = Y t-1 + t ; t ~ WN (0 , 2 ) . a. State the assumption(s) on that will make {Y t } stationary. b. Assuming {Y t } is stationary. Find the autocorrelation function and the partial autocorrelation function. As. Stationarity condition: | | < 1 and t is large. Note that Y t = Y t-1 + t ; Y o = 0. Y t = t Y o + t-1 1 + t-2 2 + ... + 1 t-1 + t . E(Y t ) = 0. V(Y t ) = ( 2(t-1) + 2(t-2) + ... + 2 + 1) 2 = 2 (1- 2t )/(1- 2 ). If Y t has an infinite history (i.e., we do not have the initial condition Y = 0), then V(Y t ) = 2 /(1- 2 ). Autovariance: (1) = E(Y t Y t-1 ) as E(Y t ) = 0 = E( Y 2 t-1 + Y t-1 t ) = E(Y 2 t-1 ) = (0)....
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ECON217_HW_ARMA_Key - ECON217_HW_ARMA Suggested Solutions...

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