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1. UNIVARIATE PRELIMINARY ANALYSIS From a statistical p. o. v., a time series is a sequence of random variables ordered in time; we introduce the concept of STOCASTIC PROCESS (SP): {Xt}, t = 1, 2, ..., T
Roberto Golinelli
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Univariate preliminary analysis The stationarity issue in AR models: the unit root tests Unit roots and spurious regressions The dynamic specification (ARDL) Long run relationships and cointegrated variables Modelling systems Guidelines for the preparation of applied econometrics projects Reading list and acknowledgements
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a corresponding artificial series can be generated with same sample mean and standard deviation of the historical u: genr uaswn = 6.94 + 3.13 * nrnd genr meanline = 6.94 plot u uaswn meanline
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2 0 60 65 70 U 75 80 85 90 MEANLINE 95
-0.12 55 60 LQR 65 70 75 80 85 90 95
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The white noise (WN) model for the unemployment rate in Italy would state that: u randomly fluctuates around a constant mean (6.94) with constant variance (3.132). But the white noise model does not fit actual data for u because it does not feature the time series most common characteristic: PERSISTENCE. In fact, the actual u is by far more persistent than the simple WN process under and above the natural rate of about 7%. Q: IS THIS RESULT PECULIAR TO UNEMPLOYMENT? Eviews/lqr/series lqr (logs of capacity utilisation ratio). plot lqr lqraswn meanline From the plot below it is evident that the capacity utilisation has a completely different path with respect to the unemployment rate: in fact, lqr is markedly less persistent than u. However, the capacity utilisation ratio still persists more than the corresponding artificial series (generated as a white noise realisation).
Example of another SP: the AR(1) model [2] xt = c + xt-1 + t t ~ n.i.d. (0, 2) is a WN The variable xt is not independently distributed over time because it depends on xt-1. In a model for u, we can estimate c and parameters of equation [2] by using the OLS method: ls u c u(-1)
Method: Least Squares Sample(adjusted): 1961 1999 Included observations: 39 after adjusting endpoints Variable Coefficient Std. Error t-Statistic C 0.123144 0.215444 0.571584 U(-1) 1.011932 0.028916 34.99588
14 12 10 8 2 1 0 -1 -2 65 70 75 80 85 Actual 90 95 Fitted 6 4 2