Question #37 - Reading 2 Time-Series Analysis

Reading: Reading 2 Time-Series Analysis

PDF File: Reading 2 Time-Series Analysis.pdf

Page: 18

Status: Unattempted

Correct Answer: A

Shared Context

- 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) ? A) There is no unit root. B) There is a unit root and the model cannot be used in its current form. C) There is a unit root but the model can be used if covariance-stationary.

Question

Cranwell would also like to test for serial correlation in his AR(1) model. To do this, Cranwell should:

Answer Choices:

A. use the provided Durbin Watson statistic and compare it to a critical value

B. use a t-test on the residual autocorrelations over several lags

C. determine if the series has a finite and constant covariance between leading and lagged terms of itself

Explanation

To test for serial correlation in an AR model, test for the significance of residual autocorrelations over different lags. The goal is for all t-statistics to lack statistical significance. The Durbin-Watson test is used with trend models; it is not appropriate for testing for serial correlation of the error terms in an autoregressive model. Constant and finite unconditional variance is not an indicator of serial correlation but rather is one of the requirements of covariance stationarity.

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