Question #6
Reading: Reading 2 Time-Series Analysis
PDF File: Reading 2 Time-Series Analysis.pdf
Page: 2
Status: Unattempted
Question
The procedure for determining the structure of an autoregressive model is:
Answer Choices:
A. test autocorrelations of the residuals for a simple trend model, and specify the number of significant lags
B. estimate an autoregressive model (for example, an AR(1) model), calculate the autocorrelations for the model's residuals, test whether the autocorrelations are different from zero, and add an AR lag for each significant autocorrelation
C. estimate an autoregressive model (e.g., an AR(1) model), calculate the autocorrelations for the model's residuals, test whether the autocorrelations are different from zero, and revise the model if there are significant autocorrelations
Explanation
The procedure is iterative: continually test for autocorrelations in the residuals and stop
adding lags when the autocorrelations of the residuals are eliminated. Even if several of
the residuals exhibit autocorrelation, the lags should be added one at a time.