NEED TO KNOW

Question 1

How to test the null of AC?

Answer 1

Use the d-stat against the upper and lower bounds.

Question 2

How do you run the BG test?

Answer 2

1. Run the OLS and obtain residuals
2. Regress the residuals on the regressors and the p-autoregressive terms.
3. Obtain R2

Question 3

What is the BG test w/ equation?

Answer 3

ut = put-1 + put-2 + Pput-p + vt

Question 4

What is the null and alternative hypothesis for the BG test?

Answer 4

H0: No higher order AC - p1 = p2 = p3 = pp = 0
H1: Higher autocorrelation is present in the error terms

Question 5

A consequence of MC?

Answer 5

Still BLUE

Question 6

What is the LR relationship? Cointegration?

Answer 6

Each variable is non-stationarity but they have linear stationarity when combined.

Question 7

What does ADF do?

Answer 7

Generates the first difference of the dependent variable.

Question 8

What is the null of DF or ADF?

Answer 8

Null H0: B3=0 so unit root.

Question 9

What is the difference between DF and ADF in terms of lags?

Answer 9

We have p-lags in ADF

Question 10

What can we also do to make the data stationary?

Answer 10

We can take the first difference.

Question 11

What is ZA?

Answer 11

It is a minimum root test that tests for structural breaks on the basis of t-stats

Question 12

What is cointegration?

Answer 12

Cointegration is when one non-stationary series is regressed on another yet they do not result in spurious regression. If two-time series have a stochastic trend then this will cancel each other out (become stationary) so we have a long-run E.

Question 13

How do we get the parameters in the ECM (from the cointegrating equation?)

Answer 13

Need to regress lc ly

Question 14

How do you conduct the formal test for Cointegration?

Answer 14

1. Determine if stationary or non-stationary?
   - If non-stationary might have cointegration.
2. Perform cointegration equation and get ECM
   - DO THIS BY REGRESSING LC LY
   - Cointegrating equation is lc = b0 + b1Ly + error
   - Get ECM from this error (emc) = Lc-B0-B1Ly
3. USE CRADF TEST TO SEE IF COINTEGRATING - THAT IS IF STATIONARY
4. Identify if the dependent variable is lc or ly?
   - CREATE EMC1 Lagged emc= l.emc
   The function of emc1 (lagged error term) that is negative and statistically significant is the dependent.
   - USE REGRESS DLC EMC1
   - DLY EMC1
5. Specify ARDL/ESTIMATE THE SR EQUATION
6. Search for parsimonious ARDL
   - This could be taking the first difference but removing the error correction model.

Question 15

What do we regress to find what is dependent in cointegration?

Answer 15

regress dlc emc1
regress dly emc1
EMPHASIS ON THE d

Question 16

In the EG test what do u need to do to actually tell if there is cointegration?

Answer 16

Need to use the CRADF test.
H0: Unit root - no cointegration
H1: Stationarity - we have a cointegrating relationship.

Question 17

What does the ECM do? What don’t we observe?

Answer 17

It uses lagged error terms in the short-run to count for any disequilibrium between Yt* and Yt.
Where Yt* is the variable we don’t observe and Yt we do observe.

Question 18

How is the LR achieved with SR disequilibrium?

Answer 18

Treat error term Ut=ln(ct) - B0 - B1(Yt) as equilibrium error term that corrects deviations of ln(Ct) from its E value.

Question 19

What is the SR Granger Causality test?

Answer 19

Test helps us to find if LY is affected by the disequilibrium in LC.

Question 20

What is the LR cointegrating relationship?

Answer 20

Ln(Ct) = B0 + B1ln(Yt) + Ut 
ln = constant + ly + error

Question 21

What is regressed to determine how much the series has been corrected by?

Answer 21

regress dlc emc1 dlc1 dlc2 dlc3 dlc4 dly dly1 dly2 dly3 dly4

Question 22

What does the coefficient of ecm1 mean?

Answer 22

if there was any deviation from E value in the previous period, it has been corrected in the current period by x%.

Question 23

What do we run the CRADF test on?

Answer 23

The error term (EMC) with suppressed constant and 2 lags