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HW08b_sol

# HW08b_sol - Homework 12 Solutions Problem 1 Part A...

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Homework 12 Solutions Page 1 of 5 Problem 1 Part A ARIMA(1,1,0) = t t t Y Y 1 1 0 The model does not appear to be adequate as there is a significant autocorrelation at lag 2 with t = –3.65. At that point the LBQ is also greater than the related 2 05 . 0 value thus also indicating that the errors are not a random series. Part B The model might be modified by incorporating a second difference component to the model. Both the Akaike information criterion and Bayesian information criterion can be used to evaluate the effectiveness of the new model. Problem 2 Part A From table P-7B the autocorrelations of the original data continue to be significant for some time this suggesting a non-stationary time series. Original Data 0.00 0.20 0.40 0.60 0.80 1.00 1 2 3 4 5 6 7 8 9 10 11 12 Lag Auto Corr The autocorrelations for the first-differenced series (table P-7C) suggest that a time series of first-difference is stationary and that this is optimal over the second-differenced series (–0.40 is closer to zero than –0.53).

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