a) Define the term 'unit root' and explain why it is important to test for unit root in time series data before attempting to build an empirical model. b) A researcher wants to test for the presence of unit root in time-series data and decides to use the Dickey-Fuller (DF) test. He estimates a regression of the form Ayt = μ+Vyt-1 + Ut and obtains the estimate = -0.75 with standard error = 0.24 i) Given the data, and a critical value of -2.88, perform the DF test. What are the null and alternative hypotheses for this test? What is the main conclusion from this test? ii) Another researcher suggests that there may be a problem with this methodology since it assumes that the disturbances are white noise. Suggest a possible source of difficulty and how the researcher might in practice get around it.
a) Define the term 'unit root' and explain why it is important to test for unit root in time series data before attempting to build an empirical model. b) A researcher wants to test for the presence of unit root in time-series data and decides to use the Dickey-Fuller (DF) test. He estimates a regression of the form Ayt = μ+Vyt-1 + Ut and obtains the estimate = -0.75 with standard error = 0.24 i) Given the data, and a critical value of -2.88, perform the DF test. What are the null and alternative hypotheses for this test? What is the main conclusion from this test? ii) Another researcher suggests that there may be a problem with this methodology since it assumes that the disturbances are white noise. Suggest a possible source of difficulty and how the researcher might in practice get around it.
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
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Question

Transcribed Image Text:20.
a) Define the term 'unit root' and explain why it is important to test for unit root in time series
data before attempting to build an empirical model.
b) A researcher wants to test for the presence of unit root in time-series data and decides
to use the Dickey-Fuller (DF) test. He estimates a regression of the form
Ayt = μ+ yt-1 + Ut
and obtains the estimate = -0.75 with standard error = 0.24
i) Given the data, and a critical value of -2.88, perform the DF test. What are the null
and alternative hypotheses for this test? What is the main conclusion from this test?
ii) Another researcher suggests that there may be a problem with this methodology
since it assumes that the disturbances are white noise. Suggest a possible source
of difficulty and how the researcher might in practice get around it.
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