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

Interest rates with different maturities, Including different interest rate...

Including different interest rates with different maturities would complicate the models however it wouldn't buy you very much. Because interest rates with different maturities are

Inverse market supply curve, The inverse market demand curve for a good is ...

The inverse market demand curve for a good is p = 100? 0.25Q. the inverse market supply curve for the good is p = 20 + 0.55Q. Calculate the equilibrium price and quantity, consumer

Bop on capital account, BOP on Capital Account: BOP on Capital Account...

BOP on Capital Account: BOP on Capital Account  shows only export and import of capital and  the difference between  the  two represents a country's capital account balance. C

Internal market forces, what are some internal market forces and how is the...

what are some internal market forces and how is the outcome of output, jobs, prices, growth, and international balance

# spending multiplier, Economist mark Edward the multiplier effect of Alask...

Economist mark Edward the multiplier effect of Alaska trade to Japan another 600 million is added to the state economy for Japanese recovery, associated press and local wire June 2

Concept of taxation, The Concept of Taxation is explained below: Taxes ...

The Concept of Taxation is explained below: Taxes are the general purpose, compulsory contributions by people to the public treasury (or national exchequer) to meet the expendi

Homework, Using a flexible exchange rate system with imperfect capital mobi...

Using a flexible exchange rate system with imperfect capital mobility explain the impact that an open economy has on the effectiveness of monetary and fiscal policy. 2. Using a fl

Single nonprofit provider, For a single nonprofit provider, describe an out...

For a single nonprofit provider, describe an output-maximizing model to predict supplier behavior.

Concept of growth and growth rate, The Concept of Growth and Growth Rate is...

The Concept of Growth and Growth Rate is explained below: Economic growth is rise in an economy’s level of the production of commodities, output or income. We can talk about th

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