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

Raising chickens requires several types of feed, Raising chickens requires ...

Raising chickens requires several types of feed, such as corn and soy meal. Consider a farm in the former Soviet Union. Try to describe how decisions on the number of chickens to b

Investment strategy management, I am studying Investment Management. My ass...

I am studying Investment Management. My assignment is to develop my own Investment Strategy in the light of existing Macroeconomic environment situation for a country such as Pakis

Consumption function of an economy, The consumption function of an economy ...

The consumption function of an economy is given by c = 200+0.75(y-t) And the investment function by I = 200 = - 25r. Government purchases G and taxes Τ are both 100.  T

Define the points of individual choices makes and interact, Define the poin...

Define the points of individual choices makes and interact. A. How individuals make choices: • Scarcity • Opportunity cost • Trade-offs • Marginal analysis B. Ho

Null and alternative hypothesis, To determine whether high blood pressure a...

To determine whether high blood pressure affected whether a person had a stroke, a sample of 300 people who had had strokes are examined. In the sample, 37% had high blood pressure

Production required to produce rice, In the heckscherohlin model, a decreas...

In the heckscherohlin model, a decrease in the factors of production required to produce rice and beans would: a. shift the production possibilities frontier for rice and beans

Explain the consumer prices index, Consumer Prices Index Two economic ...

Consumer Prices Index Two economic indices learnt at AS are the Consumer Prices Index (CPI) and the Retail Prices Index (RPI). Both are used to calculate the average price lev

What are the contents in the market strikes back, What are the contents in ...

What are the contents in the market strikes back? a. Price controls • Price ceiling • Price floor b. Quantity controls quota c. Excise tax d. Inefficiency

Major tenets of kant''s ethical theory, Please answer the question below re...

Please answer the question below relating it to BUSINESS in today's world. What are the major tenents of the ethical theory of Utilitarianism, and how would this theory be appli

What is this volume in acre-feet, 1. Lake Kickapoo, TX, is approximately 12...

1. Lake Kickapoo, TX, is approximately 12 km in length by 2.5 km in width. The inflow for the month of April is 3.26 m3/s and the outflow is 2.93 m3/s. The total monthly precipitat

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