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lect26_2010 - Introduction to Econometrics Econ 322 Fall...

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1 / 27 Introduction to Econometrics Econ 322 Fall, 2010 Lecture 26: Introduction to Time Series Methods December 6, 2010
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Topics Covered triangleright Topics Covered What is a time series? Why use time series? New Problems to deal with! Forecasting Some Definitions Example: Inflation Stationarity Autoregressive models The AR(P) Model Information Criteria BIC AIC Forecasting with the AR(p) Model Forecast Accuracy and Forecast Intervals Forecasts for the change in Inflation: 2007Q1 to 2007Q4 2 / 27 1. Time series 2. Forecasting 3. Autocorrelation 4. dynamic effects
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What is a time series? Topics Covered triangleright What is a time series? Why use time series? New Problems to deal with! Forecasting Some Definitions Example: Inflation Stationarity Autoregressive models The AR(P) Model Information Criteria BIC AIC Forecasting with the AR(p) Model Forecast Accuracy and Forecast Intervals Forecasts for the change in Inflation: 2007Q1 to 2007Q4 3 / 27 square Time series data are data collected on the same observational unit at multiple time periods Aggregate consumption and GDP for a country (for example, 20 years of quarterly observations = 80 observations) Yen/$, pound/$ and Euro/$ exchange rates (daily data for 1 year = 365 observations) Cigarette consumption per capita in a state, by year
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Why use time series? Topics Covered What is a time series? triangleright Why use time series? New Problems to deal with! Forecasting Some Definitions Example: Inflation Stationarity Autoregressive models The AR(P) Model Information Criteria BIC AIC Forecasting with the AR(p) Model Forecast Accuracy and Forecast Intervals Forecasts for the change in Inflation: 2007Q1 to 2007Q4 4 / 27 square To develop forecasting models What will the rate of inflation be next year? square To estimate dynamic causal effects If the Fed increases the Federal Funds rate now, what will be the effect on the rates of inflation and unemployment in 3 months? in 12 months? What is the effect over time on cigarette consumption of a hike in the cigarette tax? square Or, because that is your only option Rates of inflation and unemployment in the US can be observed only over time!
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New Problems to deal with! Topics Covered What is a time series? Why use time series? triangleright New Problems to deal with! Forecasting Some Definitions Example: Inflation Stationarity Autoregressive models The AR(P) Model Information Criteria BIC AIC Forecasting with the AR(p) Model Forecast Accuracy and Forecast Intervals Forecasts for the change in Inflation: 2007Q1 to 2007Q4 5 / 27 square Time lags square Correlation over time (serial correlation, a.k.a. autocorrelation) square Forecasting models built on regression methods: autoregressive (AR) models autoregressive distributed lag (ADL) models need not (typically do not) have a causal interpretation square Conditions under which dynamic effects can be estimated, and how to estimate them square Calculation of standard errors when the errors are serially correlated
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Forecasting Topics Covered What is a time series?
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