# ch16 - Chapter 16 Additional Topics in Time Series...

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

Chapter 16 Additional Topics in Time Series Regression

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

View Full Document
Orders of Integration Recall the random walk model Y t = β 0 + Y t 1 + u t . The ﬁrst difference is stationary. A series that has a random walk is said to be integrated of order one , or I(1) .
Orders of Integration If the ﬁrst difference follows a random walk Δ Y t = β 0 + Δ Y t 1 + u t , the difference of the ﬁrst differences Δ Y t Δ Y t 1 (called second difference, denoted Δ 2 Y t ). A series that follows a random walk with its ﬁrst difference is said to be integrated of order two , or I(2) . A series that does not have a stochastic trend and stationary is said to be integrated of order zero, I(0).

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

View Full Document
Consider the change in the rate of inﬂation, Δ Inf t . We could use OLS estimation because Δ Inf t is stationary I(0). I You do not detect stochastic trend with DF test The rate of inﬂation is Inf t = Δ p t is I(1). I
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 12

ch16 - Chapter 16 Additional Topics in Time Series...

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

View Full Document
Ask a homework question - tutors are online