Cointegration And Unit Roots

Question 1

How do you test whether a process is stationary or not

Answer 1

Dickey-Fuller (DF) or KPSS

Question 2

What happens to the AR(1) process when ø1 = 1

Answer 2

It becomes a random walk model: yt = yt-1 + et

Question 3

Integration process I(1) for example

Answer 3

Yt needs to be differenced 1 time to become stationary it is integrated to the order 1

Question 4

How to detect non-stationarity

Answer 4

Augmented Dickey-Fuller test
Phillips-Perron
KPSS

Question 5

The Dickey-Fuller Hypothesis

Answer 5

H0: The series contains a unit root
H1: The series is stationary

Question 6

when is ADF valid

Answer 6

If et in the test regression is considered white noise

Question 7

What is expected of the error terms in the PP test

Answer 7

Serially correlated

Question 8

KPSS test hypothesis

Answer 8

H0: yt is stationary
H1: yt is non-stationary

Question 9

Difference between unit root test and stationary test

Answer 9

Unit root test H0: has a unit root
Stationary test h0: stationarity