Question #36 - Reading 2 Time-Series Analysis

Reading: Reading 2 Time-Series Analysis

PDF File: Reading 2 Time-Series Analysis.pdf

Page: 17

Status: Unattempted

Correct Answer: B

Shared Context

- After discussing the above matter with a colleague, Cranwell finally decides to use an autoregressive model of order one i.e. AR(1) for the above data. Below is a summary of the findings of the model: b0 0.4563 b1 0.6874 Standard error 0.3745 R-squared 0.7548 Durbin Watson 1.23 F 12.63 Observations 180 Calculate the mean reverting level of the series. A) 1.26. B) 1.46. C) 1.66.

Question

Cranwell is aware that the Dickey Fuller test can be used to discover whether a model has a unit root. He is also aware that the test would use a revised set of critical t-values. What would it mean to Bert to reject the null of the Dickey Fuller test (Ho: g = 0) ?

Answer Choices:

A. There is no unit root

B. There is a unit root and the model cannot be used in its current form

Explanation

The null hypothesis of g = 0 actually means that b1 – 1 = 0 , meaning that b1 = 1. Since we have rejected the null, we can conclude that the model has no unit root.

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