Alberto Contreras Mayo 2011

Stationary Processes ARMA models
Studying some data from the Mexican Economy with Time Series Models
Alberto Contreras Cristn, Julio Lpez-Gallardo, Armando a o Snchez, Miguel Chong a
XXV Foro Nacional de Estad stica, 2010
Alberto Contreras Cristn, Julio Lpez-Gallardo, Armando Snchez, Miguel some data from the Mexican Economy with Time Ser a o a Studying Chong
2nd order Stationarity

A discrete time stochastic process {Xt , t = 0, 1, . . . } is stationary (second order) if its moments of order 2 exist and IE (Xt ) = , t
COV (Xt , Xt+ ) = ,
t.

A discrete time stochastic process {Xt , t = 0, 1, . . . } is stationary (second order) if its moments of order 2 exist and IE (Xt ) = , t
COV (Xt , Xt+ ) = , For non stationary processes we may have
t.
COV (Xt , Xt+ ) = ,t .
x
0 2 4
0 50 100 Index 150 200
0
0
10
15
20
25
30
50 time
100
150
Figure: (a) Stationary
(b) non-Stationary
ARMA models
Let p, q be positive integers and let B be the operator Bxt = xt1 . 1. ARMA(p, q) model p (B)Xt = q (B)t , (1)
ARMA models
Let p, q be positive integers and let B be the operator Bxt = xt1 . 1. ARMA(p, q) model p (B)Xt = q (B)t , 2. where (z) = 1 1 z 2 z 2 p z p , (z) = 1 + 1 z + 2 z 2 + + q z q and {t } a sequence of uncorrelated random variables, such 2 that for all t, t Normal(0, ). (1)
ARMA models
Let p, q be positive integers and let B be the operator Bxt = xt1 . 1. ARMA(p, q) model p (B)Xt = q (B)t , 2. where (z) = 1 1 z 2 z 2 p z p , (z) = 1 + 1 z + 2 z 2 + + q z q and {t } a sequence of uncorrelated random variables, such 2 that for all t, t Normal(0, ). 3. If data are non-stationary, we may transform these in order to t a model of this class. As in Regression Analysis, checking assumptions and goodness of t is compulsory. (1)
Seasonality
For data with a seasonal component, models of the class SARIMA((p, d, q) (P, D, Q))s are available.
12 6 7 8 thousands 9 10 11
1973
1974
1975 months
1976
1977
1978
example average weekly price for Hass Avocado (10k box)

Precio promedio semanal
Series 1
50
1996
100
150
200
250
300
350
400
1998
2000
2002
2004
2006
2008
Figure: (a) Hass avocado
(b) average weekly prices
SARIMA models
1. Let d, D, s, be positive integers. {Xt } is a SARIMA((p, d, q) (P, D, Q))s process (with period s) if Yt = (1 B)d (1 B s )D Xt is a stationary ARMA process satisfying p (B)P (B s )Yt = q (B)Q (B s )t , (B) (A)
SARIMA models
1. Let d, D, s, be positive integers. {Xt } is a SARIMA((p, d, q) (P, D, Q))s process (with period s) if Yt = (1 B)d (1 B s )D Xt is a stationary ARMA process satisfying p (B)P (B s )Yt = q (B)Q (B s )t , 2. where p (z) = 1 1 z 2 z 2 p z p , P (z) = 1 1 z 2 z 2 P z P , q (z) = 1 + 1 z + 2 z 2 + + q z q , Q (z) = 1 + 1 z + 2 z 2 + + Q z Q . {t } are uncorrelated and identically distributed as a 2 normal(0, ) r.v. (B) (A)
We will take data corresponding to the period from January of 2004 to the last week available (September 17th to 21st of 2007) before the missing observation.
We will take data corresponding to the period from January of 2004 to the last week available (September 17th to 21st of 2007) before the missing observation. Fit a SARIMA model to this data set.
We will take data corresponding to the period from January of 2004 to the last week available (September 17th to 21st of 2007) before the missing observation. Fit a SARIMA model to this data set. Use the model to forecast the missing datum
2.6 Logaritmo de los datos 1.9
2004
2.0
2.1
2.2
2.3
2.4
2.5
2005
2006
2007
{Xt } are (the logarithm in base 10 of) the average weekly prices (10kg box).
{Xt } are (the logarithm in base 10 of) the average weekly prices (10kg box). A series of trials leads to dierence at lag 1 corresponding to d = 1, then dierence at lag s = 52 corresponding to D = 1 so that the resulting series {Yt } looks stationary
{Xt } are (the logarithm in base 10 of) the average weekly prices (10kg box). A series of trials leads to dierence at lag 1 corresponding to d = 1, then dierence at lag s = 52 corresponding to D = 1 so that the resulting series {Yt } looks stationary Its ACF allows us to choose a SARIMA model
0.8 ACF 0.4
0
0.2
0.0
0.2
0.4
0.6
1.0
20
40
Lag
60
80
100
The ACF points to a SARIMA(p = 0, d = 1, q = 7)(P = 0, D = 1, Q = 1)52 model
The ACF points to a SARIMA(p = 0, d = 1, q = 7)(P = 0, D = 1, Q = 1)52 model After estimation a residual analysis follows
Series residuals
0.00 0.04
residuals
ACF
2005.0 2006.0 Time 2007.0
0.06
0.2
0
0.2
0.6
1.0
20
60 Lag
100
140
Normal QQ Plot
Histogram of residuals
0.06
0 10 20 30 40 50
0.06
Sample Quantiles
0.00 0.04
Frequency
0.02
0.02
0.06
Theoretical Quantiles
residuals
Use the model to forecast the missing observation (September 24rd to 28th of 2007).
Use the model to forecast the missing observation (September 24rd to 28th of 2007). This yields X = 338.26. mxn.
Use the model to forecast the missing observation (September 24rd to 28th of 2007). This yields X = 338.26. mxn. Average weekly price from the previous week is 355 mxn. and for the week after is 320 mxn.
Use the model to forecast the missing observation (September 24rd to 28th of 2007). This yields X = 338.26. mxn. Average weekly price from the previous week is 355 mxn. and for the week after is 320 mxn. Using the completed data set (January 2004 to July of 2008) we can t a SARIMA model and produce forecasts
100 2004
150
200
250
300
400
2005
2006
2007
2008
Figure: Forecasts using a SARIMA(p = 0, d = 1, q = 7)(P = 0, D = 1, Q = 1)52 model
VAR(p) models
1. A vector process {Xt } of dimension K 1 is autoregressive of order p if
p
Xt =
i=1
i Xti + V Zt + + dt + wt + Et ,
(2)
where
VAR(p) models
p
Xt =
i=1
(2)
where 2. {i }p are K K dimensional matrices of coecients. 1
VAR(p) models
p
Xt =
i=1
(2)
where 2. {i }p are K K dimensional matrices of coecients. 1 3. Zt are exogenous variables (covariates), dt vector of seasonal dummies, wt vector of intervention dummies.
VAR(p) models
p
Xt =
i=1
(2)
where 2. {i }p are K K dimensional matrices of coecients. 1 3. Zt are exogenous variables (covariates), dt vector of seasonal dummies, wt vector of intervention dummies. 4. {Et } is a sequence of uncorrelated vectors such that Et NK (0, ) for each t
VAR(p) models
p
Xt =
i=1
(2)
2. 3. 4. 5.
where {i }p are K K dimensional matrices of coecients. 1 Zt are exogenous variables (covariates), dt vector of seasonal dummies, wt vector of intervention dummies. {Et } is a sequence of uncorrelated vectors such that Et NK (0, ) for each t , V , , are vectors and matrices (parameters) of the appropriate dimensions.
VAR(p) models
Gathering all covariates Zt , dt , wt and , in a M 1 dimensional vector Yt we can write (2) as
p
Xt =
i=1
i Xti + BYt + Et ,
(2)
VAR(p) models
p
Xt =
i=1
i Xti + BYt + Et ,
(2)
Under some conditions on the matrix IK 1 z p z p , |z| 1, the model

p
Xt =
i=1
i Xti + 0 + Et ,
is suitable for vectors Xt where each component is a stationary process.
VAR(p) models
p
Xt =
i=1
i Xti + BYt + Et ,
(2)
Under some conditions on the matrix IK 1 z p z p , |z| 1, the model

p
Xt =
i=1
i Xti + 0 + Et ,
is suitable for vectors Xt where each component is a stationary process. however the model in (2) can be used for the case where each component is not stationary
Cointegration
The components of the vector Xt cointegrate if
Cointegration
The components of the vector Xt cointegrate if each component Xi,t of Xt is I (1) : Xi,t = Xi,t Xi,t1 is a stationary process i = 1, . . . , K .
Cointegration
The components of the vector Xt cointegrate if each component Xi,t of Xt is I (1) : Xi,t = Xi,t Xi,t1 is a stationary process i = 1, . . . , K . There is an h (K + M) dimensional matrix + (h 1) such Xt the h components of the vector + are stationary Yt processes.
Cointegration
The components of the vector Xt cointegrate if each component Xi,t of Xt is I (1) : Xi,t = Xi,t Xi,t1 is a stationary process i = 1, . . . , K . There is an h (K + M) dimensional matrix + (h 1) such Xt the h components of the vector + are stationary Yt processes. write (2) in the so called error correction model (VECM or VAR in Xt )
p1
AXt =
i=1
i Xti +
Xt Yt
+ Yt + Et .
Cointegration
The components of the vector Xt cointegrate if each component Xi,t of Xt is I (1) : Xi,t = Xi,t Xi,t1 is a stationary process i = 1, . . . , K . There is an h (K + M) dimensional matrix + (h 1) such Xt the h components of the vector + are stationary Yt processes. write (2) in the so called error correction model (VECM or VAR in Xt )
p1
AXt =
i=1
i Xti +
Xt Yt
+ Yt + Et .
for K K dimensional matrices A and {i } and matrices and of dimensions K h and K M
Assuming that the model (2) is appropriate (check residuals), we can estimate the matrix + . The estimated parameters furnishes us with economical interpretations

MAQWNU
1 1990 1995 2000
(1)
IMWNU 15.0
12.5
10.0
7.5
5.0
2.5
1990
1995
1) maquila nominal wage
(2) 2) Manufacturing nominal wage

2000
DES 27.5
25.0
22.5
20.0
17.5
15.0 1990 1995 2000
(1)
150
IMYBR
140
130
120
110
100
90 1990 1995 2000
(2)
1) underemployment rate 2) Gross value of production manufacturing
Error correction Model

Fit the error correction model from a a VAR(4) for Xt , where X1,t Manufacturing nominal wage X2,t = Maquila nominal wage X3,t Manufacturing gross value of product.

Fit the error correction model from a a VAR(4) for Xt , where X1,t Manufacturing nominal wage X2,t = Maquila nominal wage X3,t Manufacturing gross value of product. As a covariate Zt = underemployment rate is included.

Fit the error correction model from a a VAR(4) for Xt , where X1,t Manufacturing nominal wage X2,t = Maquila nominal wage X3,t Manufacturing gross value of product. As a covariate Zt = underemployment rate is included. Dummies for seasonal eects are included

Fit the error correction model from a a VAR(4) for Xt , where X1,t Manufacturing nominal wage X2,t = Maquila nominal wage X3,t Manufacturing gross value of product. As a covariate Zt = underemployment rate is included. Dummies for seasonal eects are included Assumptions as Normality, no correlation and Heteroskedasticity were tested. The model is ne at signicance level = 0.05.

Fit the error correction model from a a VAR(4) for Xt , where X1,t Manufacturing nominal wage X2,t = Maquila nominal wage X3,t Manufacturing gross value of product. As a covariate Zt = underemployment rate is included. Dummies for seasonal eects are included Assumptions as Normality, no correlation and Heteroskedasticity were tested. The model is ne at signicance level = 0.05. R 2 = 0.93.
Right or Wrong ?
From this error correction model a cointegration (long run) relationship is estimated as the stationary process t given by
Right or Wrong ?
From this error correction model a cointegration (long run) relationship is estimated as the stationary process t given by X1,t 0.88X2,t + 0.29Zt 0.10X3,t = t
Right or Wrong ?
From this error correction model a cointegration (long run) relationship is estimated as the stationary process t given by X1,t 0.88X2,t + 0.29Zt 0.10X3,t = t namely, in the long run we have X1,t = 0.88X2,t 0.29Zt + 0.10X3,t
Some references
Brockwell D. and Davis R. Time series : theory and applications. Springer Verlag
Some references
Brockwell D. and Davis R. Time series : theory and applications. Springer Verlag Ltkepohl, H. New Introduction to Multiple Time Series u Analysis. Springer Verlag.

Alberto Contreras Mayo 2011

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Alberto Contreras Mayo 2011

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Stationary Processes ARMA models

XXV Foro Nacional de Estad stica, 2010

Stationary Processes ARMA models

2nd order Stationarity

COV (Xt , Xt+ ) = ,

Stationary Processes ARMA models

2nd order Stationarity

COV (Xt , Xt+ ) = , For non stationary processes we may have

COV (Xt , Xt+ ) = ,t .

Stationary Processes ARMA models

2nd order Stationarity

Figure: (a) Stationary

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

example average weekly price for Hass Avocado (10k box)

Figure: (a) Hass avocado

(b) average weekly prices

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

The ACF points to a SARIMA(p = 0, d = 1, q = 7)(P = 0, D = 1, Q = 1)52 model

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Figure: Forecasts using a SARIMA(p = 0, d = 1, q = 7)(P = 0, D = 1, Q = 1)52 model

Stationary Processes ARMA models

Stationary Processes ARMA models

where 2. {i }p are K K dimensional matrices of coecients. 1

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Under some conditions on the matrix IK 1 z p z p , |z| 1, the model

is suitable for vectors Xt where each component is a stationary process.

Stationary Processes ARMA models

Under some conditions on the matrix IK 1 z p z p , |z| 1, the model

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

Stationary Processes ARMA models

for K K dimensional matrices A and {i } and matrices and of dimensions K h and K M

Stationary Processes ARMA models

Stationary Processes ARMA models

1 1990 1995 2000

1) maquila nominal wage

(2) 2) Manufacturing nominal wage

Stationary Processes ARMA models

15.0 1990 1995 2000

90 1990 1995 2000

1) underemployment rate 2) Gross value of production manufacturing