Econ 505: Economic Models and Forecasting Homework Assignment #2 jj espinoza Problem 1

1. 
   Download monthly personal consumption expenditure (PCE) and personal disposable income (PDI) data from 1980:01 to 2008:12. Use both ADF and Correlogram test to show that both series are non-stationary.
   

When using the Augmented-Dickey Fuller Test we must include the existence of a trend and intercept as an important set of parameters to consider.

After going to “Quick” then “Series Statistics” and the “Unit Root Test” on EViews and then selecting the following criteria:

The results of the Augmented Dickey-Fuller Unit Root Test on PCE (Personal Consumption Expenditure) are shown in the image below. Note that the Null-Hypothesis is that PCE has a unit root or that PCE is non-stationary. The t-statistics is -1.615 which is not statistically significant at the 10% level so we cannot reject the Null-Hypothesis that PCE has a unit root/is non-stationary.