8. Non-stationary Time series

Is independent of time however variance of time

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Unformatted text preview: endent of time However Variance of time series of X at time t depends on time t. So variance depends on time and is not stationary. Key thing keep past with us. That means error terms goes to . In result we get bad standard errors. 2) Random walk with a drift: is a random walk is a random walk with a drift Stationarity fails because is function of time Space for figure (1) 3) Deterministic Trend- depends on time, therefore not stationary. Space for figure (2) Errors are clustered around a trend line In random walk with drift Space for figure (3) It has increasing trend but no trend line. 4) Making Non Stationary Stationary : a) Difference Stationary Random walk with drift Difference data (It does not depend on time) (It does not depend on time) This is integrated of order 1, made stationary by differencing the data. This is written as I(1) Integrated of order 1 General form of writing time series is ARIMA Stata In stata , sort by trend Sort trend Gen dX = dX Br trend X dX b) Trend Stationary ̂ This is detrending of the data ̂ Define ̃ ̃ is “ Trend Stationary” (̃) (̃) Therefore, Stationary....
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This note was uploaded on 10/18/2013 for the course EC 421 taught by Professor Gaus during the Fall '08 term at University of Oregon.

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