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Applied Econometric Time Series Third Edition Walter Enders, University of Alabama Copyright © 2010 John Wiley & Sons, Inc.

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Presentation on theme: "Applied Econometric Time Series Third Edition Walter Enders, University of Alabama Copyright © 2010 John Wiley & Sons, Inc."— Presentation transcript:

1 Applied Econometric Time Series Third Edition Walter Enders, University of Alabama Copyright © 2010 John Wiley & Sons, Inc.

2 CHAPTER 4 MODELS WITH TREND

3 1. DETERMINISTIC AND STOCHASTIC TRENDS The Random Walk Model The Random Walk Plus Drift Model Generalizations of the Stochastic Trend Model

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7 2. REMOVING THE TREND Differencing Detrending Difference versus Trend-Stationary Models Are There Business Cycles? The Trend in Real GDP

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11 3. UNIT ROOTS AND REGRESSION RESIDUALS

12 4. THE MONTE CARLO METHOD Monte Carlo Experiments Example of the Monte Carlo Method Generating the Dickey–Fuller Distribution

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15 5. DICKEY–FULLER TESTS An Example

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17 6. EXAMPLES OF THE DICKEY–FULLER TEST Quarterly Real U.S. GDP Unit Roots and Purchasing Power Parity

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21 7. EXTENSIONS OF THE DICKEY–FULLER TEST Selection of the Lag Length The Test with MA Components ◦ Lag Lengths and Negative MA Terms Multiple Roots Seasonal Unit Roots

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24 8. STRUCTURAL CHANGE Perron’s Test for Structural Change Perron’s Test and Real Output Tests with Simulated Data

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28 9. POWER AND THE DETERMINISTIC REGRESSORS Power Determination of the Deterministic Regressors

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30 10. TESTS WITH MORE POWER An Example

31 11. PANEL UNIT ROOT TESTS Limitations of the Panel Unit Root Test

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34 12. TRENDS AND UNIVARIATE DECOMPOSITIONS The General ARIMA (p, 1, q) Model The Unobserved Components Decomposition The Hodrick–Prescott Decomposition

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36 13. SUMMARY AND CONCLUSIONS

37 APPENDIX 4.1: THE BOOTSTRAP Bootstrapping Regression Coefficients

38 APPENDIX 4.2: DETERMINATION OF THE DETERMINISTIC REGRESSORS GDP and Unit Roots

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