ECOM30004/90004 Time Series Analysis & Forecasting

Tutorial 1

Questions
The EViews workfile for this tutorial contains original quarterly data for Australian real private
fixed capital investment between 1959Q3 and 2011Q1.1
The variable is denoted IN V EST M EN Tt .
(a) Properly specify and estimate the deterministic structure of this time series. Fully justify
your answers. Note that a relevant policy change that may have affected investment in
Australia was the adoption of inflation targeting in April 1993. Think carefully about how
you can include this effect into your model.
(b) Write out the preferred model you built in part (a). Interpret in detail all of the key
parameter estimates.
(c) Overall, do you believe that inflation targeting has proven to be pro-investment or counterinvestment? Justify your answer from both a statistical and an economic perspective.
(d) Notice that the standard errors associated with the seasonal dummy variables all take the
same value to five decimal places. In an infinitely large sample they would all be exactly
equal. Explain why this is the case.

Data source: ABS 5206-50, Original CVM: GFCF: Private: Machinery & Equipment: Total.