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Unit Root Tests

Unit Root Tests. Integrated Process. Integrated Process I(1): Y t = Y (t-1) + ARMA(p, q) t A Key Model (Hypothesis) for Macroeconomic Variables. Behavior of Two Trend Models - Long Run Forecast Implications. For t = h (for h=0, Y 0 = b 0 )

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Unit Root Tests

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  1. Unit Root Tests

  2. Integrated Process • Integrated Process I(1): Yt = Y(t-1) + ARMA(p, q)t • A Key Model (Hypothesis) for Macroeconomic Variables

  3. Behavior of Two Trend Models - Long Run Forecast Implications For t = h (for h=0, Y0=b0) • Fixed Trend Yh = b0 + b1 h + eh eh is WN(0, s) • Variable Trend Yh = Y0 + d h + e1 + e2…. eh… SD of (e1 + e2…. eh) =

  4. Unit Root Test Using t

  5. Unit Root Test Using tm

  6. Unit Root Test Using tt

  7. Unit Root Test - Why So Called? • Note that: Yt - Y(t-1) = (1 - L) Yt = ARMA(p, q)process, i.e.,

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