Econometrics is a branch of economics mostly associated with the use of mathematical and statistical methods to analyse economic data. Since the quantity and complexity of this data is available in an ever-increasing capacity, which is why various techniques need to be applied to analyse this social, financial, economic and business data. A variety of empirical methods are employed to define a clear-cut hypothesis that explains the mature and set of the data set. To attempt the assignments based on this subject, quantitative skills need to applied.
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Yt = mt + st + et; (1)
where fmtg is the trend component of the form mt = _0+_1 (t?12)+_2 (t?12)2
with _i 6= 0 (i = 0; 1; 2) being unknown parameters, fstg is the seasonal
component satisfying st+12 = st and
P12
j=1 sj = 0, and fetg is a sequence of
stationary residuals with E[e1] = 0 and E[e21
] = 1.
(a) Is fYtg stationary ? Give your reasoning.
(b) Is the _rst{order di_erenced version of Yt, Zt = 512Yt = Yt ? Yt?12,
stationary? Give your detailed reasoning.
(c) Is the second{order di_erenced version of Yt, Wt = 52
12Yt = (1?B12)2Yt,
stationary? Give your detailed reasoning.
1
_2, written
Zt _ WN(0; _2);
if and only if fZtg has zero mean and covariance function given by
(h) =
8><
>:
_2 if h = 0
0 otherwise.
(a) Consider an ARMA(1,1) model of the form
Xt = _Xt?1 + Zt + _Zt?1;
where j_j < 1 and j_j < 1.
Find the auto{correlation coe_cient function (ACF) of fXtg, _(k), for
k = 1; 2; _ _ _.
(b) Consider an MA(1) model with drift of the form Xt = _ + Zt + _Zt?1.
Find the ACF. Does it depend on _ ?
(c) Consider a time series model of the form: (1 ? B)(1 ? 0:2B)Xt = (1 ?
0:5B)Zt. Classify the model as an ARIMA(p,d,q) model (i.e., give your
reasoning for the speci_cation of (p; d; q)).
Xt = _Xt?1 + Zt; (2)
where fZtg is a sequence of white noises with E[Zt] = 0 and 0 < _2 = E[Z2
t ],
and j_j < 1 is an unknown parameter.
(a) Derive the autocorrelation function _(k) for all k _ 1.
(b) State the necessary and su_cient condition such that fXtg is stationary.
(c) Give some detailed description for each of the possible estimation meth-
ods you have learned.
(d) Write down the corresponding code functions from R for the possible
estimation methods to be implemented in R.
(e) Using at least one of the estimation methods, write down some detailed
formulae for the estimators of the unknown parameters _ and _2.
E[ZtjFt?1] = 0: (3)
In addition, we allow for a heteroscedastic structure of the form
Z2
t = _0 + _1Z2
t?1 + ut; (4)
where futg is a sequence of white noises, and _0 > 0 and _1 _ 0.
The process fZtg satisfying (3){(4) is called an auto{regressive conditional
heteroscedastic model of order one, simply, ARCH(1).
_ Rewrite model (4) as an auto{regressive model of order one (AR(1)).
_ Give some detailed description for each of the possible estimation
methods you have learned.
_ Write down the corresponding code functions from R for the possible
estimation methods to be implemented in R.
_ Under the conditions: 0 < _1 < 1 and 3_2
1 < 1, _nd the second and
fourth moments1:
E[Z2
t ] and E[Z4
t ]:
(b) Let fZtg be a sequence of random errors satisfying
E[ZtjFt?1] = 0: (5)
In addition, we allow for a heteroscedastic structure of the form
The process fZtg satisfying (5){(6) is called a generalized auto{regressive
conditional heteroscedastic model of order (r1; r2), simply, GARCH(r1; r2).
Consider a GARCH(1,1) model of the form
Z2
t = _0 + (_1 + _1)Z2
t?1 + ut ? _1ut?1; (7)
where ut _ WN(0; _2).
_ Find the conditions such that Z2
t is stationary and 0 < E[Z2
t ] < 1.
1The derivation for the fourth moment is optional.
_2(B)_3(B12)Yt = _1(B)_2(B12)Zt; (8)
where B denotes the backward shift operator, _2, _3, _1 and _2 are
polynomials of order 2, 3, 1 and 2, respectively, fZtg _ WN(0; _2), and
Yt = 5252
12Xt = (I ?B)2(I ?B12)2Xt. This model is called a SARIMA
model of order (2; 2; 1) _ (3; 2; 2)12 for fXtg.
_ Does fYtg follow an ARIMA model of ARIMA(b1; b2; b3) ? If so, can
you specify the values of bi for i = 1; 2; 3 ?
_ Does Wt = 52
12Xt follow an ARIMA model of ARIMA(c1; c2; c3) ? If
so, can you specify the values of ci for i = 1; 2; 3 ?
_ Based on your own understanding and experience, write down the
main steps for you to identify and then estimate a seasonal ARIMA
model of the form Xt _ SARIMA(2; 2; 1) _ (3; 2; 2)12.
(b) The real data set USAccDeaths was _tted by a seasonal ARIMA model
with the following summary:
> USAccDeaths
> usa.arima1<-arima(USAccDeaths, order=c(0,1,1),
seasonal = list(order=c(0,1,1), period =12))
> usa.arima1
Call:
arima(x = USAccDeaths, order = c(0, 1, 1),
seasonal = list(order = c(0, 1, 1), period = 12))
Coefficients:
ma1 sma1
-0.4303 -0.5528
s.e. 0.1228 0.1784
sigma^2 estimated as 99347:
log likelihood = -425.44, aic = 856.88
> usa.fore<-predict(arima(USAccDeaths, order =
c(0,1,1), seasonal = list(order=c(0,1,1),
period =12)), n.ahead = 12)
$pred
Jan Feb Mar Apr May Jun
8336.061 7531.829 8314.644 8616.868 9488.912 9859.757
Jul Aug Sep Oct Nov Dec
10907.470 10086.508 9164.958 9384.259 8884.973 9376.573
$se
Jan Feb Mar Apr May Jun
315.4481 363.0054 405.0164 443.0618 478.0891 510.7197
Jul Aug Sep Oct Nov Dec
541.3871 570.4081 598.0224 624.4167 649.7397 674.1121
> ts.plot(window(USAccDeaths,1973-1978), usa.fore$pred,
usa.fore$pred + 2*usa.fore$se,
usa.fore$pred - 2*usa.fore$se)
Using the summarized information given above, answer the following
questions:
_ Which seasonal ARIMA model was used? Give your identication
of (p; d; q) _ (P;D;Q)s.
_ Write down an explicit expression for the fitted model.
1.
St =0 and St+ 12 = 0
St+12 = St
= 0
While et is normally distributed with mean 0 and variance 1
Yt = Mt + St + et becomes Yt = + (t-12) + 2 (t -12)^{2} + et
The equation is Not strictly stationary since the joint distribution of Yt1, Yt2 cannot be the same as the joint distribution of Yt1+h Yt2+h , …This cannot be transformed into an AR(2) equation and is therefore not 2^{nd} order stationary.
b)
The non-stationary second order equation can only be removed by getting the second order difference and therefore the first order difference does not make the equation stationary
2.
Auto Cov(s, t) = E Ws(1 ? Ws?1)ZsWt(1 ? Wt?1)Zt = E Ws(1 ? Ws?1)Wt(1 ? Wt?1) · EZsZt.
EZsZt = EZs · EZt = 0.
When s = t then EZsZt = EZ 2 t = 1
cov(t, t) = EW2 t (1 ? Wt?1) 2 = 1 4 .
{Xt} is not independently and identically distributed
Xt?1 = 1 shows that Wt?1 = 1,
This means that Xt = 0.
b)
The autocovariance function does not depend on the mean
Finding the mean, we have that aoutocovariance = 1 + ^{2} when ?=0
When ?= o otherwise.
C)
The auto correlation = Cov(zt, zt?k)/ ( [Var(zt) · Var(zt?k)]^{1/2}].
This is an ARIMA p model
3.
Auto Cov(s, t) = E Ws(1 ? Ws?1)ZsWt(1 ? Wt?1)Zt = E Ws(1 ? Ws?1)Wt(1 ? Wt?1) · EZsZt.
E(ZsZt)= E(Zs) · E(Zt) = 0.
When s = t then E(ZsZt) = EZ 2 t = 1
Cov(t, t) = EW2 t (1 ? Wt?1) 2 = 1 4 .
{Xt} is not independently and identically distributed
Xt?1 = 1 shows that Wt?1 = 1,
This means that Xt = 0.
c)yule walker estimation and maximum likelihood estimation
x=scan("quakes.dat")
x=ts(x)
plot(x, type="b") install.packages("astsa")
library(astsa)
lag1.plot(x,1)
acf(x, xlim=c(1,19)) xlag1=lag(x,-1) y=cbind(x,xlag1) ar1fit=lm(y[,1]~y[,2])summary(ar1fit) plot(ar1fit$fit,ar1fit$residuals)
acf(ar1fit$residuals, xlim=c()
e)
r1 =
4.
mort=scan("cmort.dat")
plot(mort, type="o")
mort=ts(mort)
mortdiff=diff(mort,1)
plot(mortdiff,type="o")
acf(mortdiff,xlim=c(1,24))
mortdifflag1=lag(mortdiff,-1)
y=cbind(mortdiff,mortdifflag1)
mortdiffar1=lm(y[,1]~y[,2])
summary(mortdiffar1)
acf(mortdiffar1$residuals, xlim = c(1,24))
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