Question #96 - Reading 2 Time-Series Analysis

Reading: Reading 2 Time-Series Analysis

PDF File: Reading 2 Time-Series Analysis.pdf

Page: 45

Status: Unattempted

Shared Context

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

Question

Bert would also like to test for serial correlation in his AR(1) model. How could this be done?

Answer Choices:

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

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

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

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. A is only used for trend models and C is one of the requirements of covariance stationarity.

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