Time Series Econometrics

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Time Series Econometrics

• Junsoo Lee
• Department of Economics
• U.C.F.

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What is Time Series Econometrics?

• Stationary vs. Nonstationary time series
• Time-domain vs. Frequency-domain approach
• Other Classifications
• Univariate vs. Multivariate models (VAR)
• Linear vs. Nonlinear models
• Observed vs. Unobserved Component models (Kalman
  Filtering model)
• Classical vs. Baysian, ...

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Popularity Revolution

• Nelson (1972, AER), Ashley (1987, Intl J. of
  Forecasting), among others, showed that a simple
  time series model performs better than
  sophisticated macro simulation models
  (FRB-MIT-Penn).
• UCF football team defeated OSU, Nebraska, UT,
  Notre Dame, UF, FSU,.
• Time Series Econometrics Revolution in late 1980s
  ??!.
• Phillips (JEC, 1986) Spurious Regression
• Phillips Park (ET, 1987, 1988) Asymptotics

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Lecture 1

• Stationary ARMA Models

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Outline of Lecture 1

• What is the ARMA model?
• Their Properties
• Box-Jenkins type fishing
• Estimation (MLE)
• Transfer function Analysis
• Intervention Analysis
• Practical Exercise
• Box-Jenkins Fishing (PEST, Eviews)
• Intervention Analysis (RATS)

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What is the ARMA model?

• White Noise process
• ARMA (p, q) Process
• Definition
• No unique form
• AR(?) or MA(?) representation
• Causal and invertible

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• ACF PACF describe their properties
• ACF
• ?(j) 0, j gt q, for MA(q) model
• PACF
• ?(j) 0, j gt p, for AR(p) model
• Dynamic Multiplier and the long-run effect

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• S-step ahead prediction
• Unit Root Process and ARIMA model
• Slowly decaying ACFs...

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Box-Jenkins Fishing Method

• Model Identification
• Detrend deterministic parts
• Examine sample ACFs and PACFs
• Eyeball examination
• Information Criteria (Akaike, Schwarz, PIC,..)
• Also, Usual tests (t, F, Wald..) and many others
• Diagnostic check of randomness of residuals
• Box-Pierce statistics

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Estimation of ARMA models

• AR(p) models OLS
• Mann-Wald theorem
• MA and ARMA models MLE
• Prediction error decomposition method

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Intervention Analysis

• Introducing Zt (exogenous, dummy)
• transfer function analysis
• Abrupt or gradual change
• Permanent or temporary change

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Practical Exercises

• Box-Jenkins Approach
• Data gnp82.dat
• Program PEST pest.zip or Eviews
• Intervention Analysis
• Data gnp82.dat
• Program RATS gnp82.prg