Unit root testing, Macroeconomics

Assignment Help:

Firstly, it is imperative that I investigate the stochastic properties of each series considered in the model prior to estimating the effects of oil price shocks on macroeconomic activity. This is done by analysing the order of integration from using a unit root test. Specifically, in this project the Augmented Dicky-Fuller (ADF) test will be used.Asteriou & Hall (2011) write the three different types of ADF equations as;

 

516_Unit Root Testing.png

Where Yt = each variable (GDP, Inflation, Interest rates, Exchange rates, Unemployment and Oil prices.)

The difference between each equation is the appearance of  and  respectively. These are deterministic elements, noted as the constant and trend respectively.

For this test, the hypotheses are stated as;

The null hypothesis,  infers that a unit root exists, whereas the alternative hypothesis,  infers that there is no root. Once this test has been passed, an appropriate lag length will need to be determined for the VAR model. If any variable does not pass this test and contains a unit root, then it will be invalid and will not be analysed in the further stages.


Related Discussions:- Unit root testing

Differentiate between nominal rate and real interest rates, Differentiate b...

Differentiate between Nominal rate and real interest rates To distinguish the real interest rate from the "normal" interest rate, the latter is called the nominal interest rate

Standard deviation for sample bills, Suppose the country club bills based o...

Suppose the country club bills based on a sample of 4 members are: 383, 1,051, 637, 928. What is the standard deviation for this sample of bills? (please round your answer to 1 dec

Central banking, what are the qualitative methods of controling credit

what are the qualitative methods of controling credit

Calculate bright star equity fair value and wacc, After the fall of the kin...

After the fall of the king, a tax rate of 20% has been introduced in the Frog Islands Republic. The value of Sun corporation is now 100.000€. Bright Star Co. debt has no changed. T

Elasticity, Suppose price elasticity of demand for HP laptops is -2.3. If t...

Suppose price elasticity of demand for HP laptops is -2.3. If the price of an HP laptop is $1,000, what should the new price be to have an increase of 10% in quantity demanded for

Liquidity preference theory, Explain clearly the liquidity preference theo...

Explain clearly the liquidity preference theory of interest propounded by j.m.keynes

International trade, difference between mercantilism and absolute advantage...

difference between mercantilism and absolute advantage

No relationship between the two at other times, Do some research and find t...

Do some research and find the inflation rate and the level of unemployment in the U.S. economy for the past 40 years. Is there a relationship between the two? If so, what type of r

Effect on unemployment, From the lower left graph of Fig. it can be seen th...

From the lower left graph of Fig. it can be seen that there is a time lag associated with an oil price shock and its subsequent effect on unemployment. The results show that for th

Define market for overnight loans, Q. Define market for overnight loans? ...

Q. Define market for overnight loans? The market for overnight loans Overnight interest rates are rates for loans over a single night - these are the shortest of all inte

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd