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

Eco, illustrate and discuss the implications of various market structures (...

illustrate and discuss the implications of various market structures (competitive and non-competitive)for price determination.

Calculate the nominal gdp, Answer the following questions for a hypothetica...

Answer the following questions for a hypothetical economy whose situation in year 1 was as follows: M = $800 billion; long-term annual growth of real GDP = 3%; V = 4. The bankin

The aggregate demand curve, The aggregate demand curve shows the combinatio...

The aggregate demand curve shows the combinations of the price level and the level of output at which the goods and money markets are simultaneously in equilibrium. Let us now go o

Relate overnight rate with money supply, Relate overnight rate with money s...

Relate overnight rate with money supply When the overnight interest rate decreases, the money supply increases When the overnight interest rate increases, the money supply d

Investment, What are the basic differences between the investment curve and...

What are the basic differences between the investment curve and an investment demand curve for an economy

Trends of trade shares, Trends of Trade Shares: India's share in total...

Trends of Trade Shares: India's share in total world exports in 1950 was 1.85 percent and the share in total world imports was 1.7 1 percent. The share of both exports and imp

Walmarts website, Over the past month, the 500 customers have downloaded th...

Over the past month, the 500 customers have downloaded the following number of songs from WalMart's website (obviously, they have had more, but we need to use workable numbers): 13

Ppf model, using the ppf model explain the principles of economics of alloc...

using the ppf model explain the principles of economics of allocative efficiency

Agency decides to hire operators, An agency is having problems with persona...

An agency is having problems with personal phone calls made during working hours. Each minute of a personal call costs the agency $0.50 in wasted wages. The agency decides to hire

What are the two types of money, What are the Two types of money In mos...

What are the Two types of money In most countries, one can identify two "types of money": Currency and coins Bank deposits Total value of all the money in a

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