Econ 505: Economic Models and Forecasting
Homework Assignment #2
JJ Espinoza
Problem 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.
PCE and PDI both have a trend and an intercept
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.
E-Views Commands:
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.
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