Ch 18 - Spurious regressions and persistent time series

Question 1

What are the 2 main types of models that have been used to capture non-stationarity in economic and financial data?

Answer 1

Models with a time trend, random walk models (unit root model)

Question 2

The time trend model’s intervals are ______

Answer 2

Constant, not a function of the forecast horizon

Question 3

The intervals from the random walk growth with the ________

Answer 3

Square root of the forecast horizon

Question 4

If we suspect that a series has a unit root, we can correct for it by ______

Answer 4

First differencing

Question 5

After first differencing , if the series is stationary, it is said to be ______

Answer 5

Integrated of order 1

Question 6

How do you test for the presence of unit root?

Answer 6

Dickey Fuller test