ARIMA

Using Stata
 Time Series Analysis
• Stochastic Data Generating Process
– Stable and Stationary Process
• Autoregressive Process: AR(p)
• Moving Average Process: MA(q)
• ARMA(p,q)
– Integrated Nonstationary Process
• ARIMA(p,d,q)
 AR(p)
yt    t , t  1t 1    pt  p   t
( y   )t  1 ( y   )t 1    p ( y   )t  p   t
yt  (1  1    p )   1 yt 1    p yt  p   t

yt    1 yt 1    p yt  p   t ,  
(1  1   p )

(1  1 B    p B p ) yt     t
  ( B) yt     t ,  t ~ iid (0,  2 )
 MA(q)

yt    t , t   t  1 t 1    q t  q
yt     t  1 t 1    q t  q
yt    (1  1B    q B q ) t
 yt     ( B) t ,  t ~ iid (0,  ) 2
 ARMA(p,q)

(1  1 B    p B p ) yt    (1  1 B    q B q ) t
  ( B) yt     ( B ) t ,  t ~ iid (0,  2 )

yt     ( B)1 ( B) t
   ( B)1
 Time Series Analysis
• Identification
– Autocorrelation Function
• MA(q)
– Partial Autocorrelation
• AR(p)
– Hypothesis Testing
• Bartlett Test
• Box-Pierce Q Test
 Time Series Analysis
• Estimation
– Maximum Likelihood Estimation
– Diagnostic Checking
• Forecasting
– Dynamic Forecast
 Seasonal ARMA(p,q)
(1  1 B s    p B sp ) yt    (1  1 B s    q B sq ) t
  ( B s ) yt     ( B s ) t ,  t ~ iid (0,  2 )

yt     ( B )  ( B ) t
s 1 s

   ( B s )1

• Example: U. S. Whole Sale Price Index,

1960Q1-1990Q4
 Multiplicative ARMA(p,q)
 ( B) ( B ) yt     ( B) ( B ) t
s s

 t ~ iid (0,  2 )
yt     ( B)1 ( B) ( B s )1 ( B s ) t
   ( B)1 ( B s )1

• Example: Airline Passengers, January 1949-

December 1960
 ARMAX(p,q)
yt  xt'   t , t ~ ARMA( p, q)
 ( B)t   ( B) t ,  t ~ iid (0,  2 )
t   ( B) 1 ( B) t
 yt  xt'    ( B) 1 ( B) t
  ( B) yt   ( B)xt'    ( B) t

• Example: U.S. Consumption-Income

Relationship
 Transfer Function
• The Model yt     ( B) xt   t
• Impulse Response Function
 ( B)   0  1 B   2 B 2 
• xt~ARMA(p,q)
 x ( B)1x ( B) xt   x  vt ,  x   x ( B) 1x ( B)  x
• Filterted yt
Let  x ( B)   x ( B)1x ( B)
Then  x ( B) yt  c   ( B) x ( B) xt  x ( B) t
 Transfer Function
• The Transformed Model
ut   x ( B) yt
vt   x ( B) xt  ut  c   ( B)vt  wt
wt   x ( B) t

• Cross Covariance
E (ut vt  j )  E (  ( B)vt vt  j )  E (  j vt2 j )   j v2   uv ( j )
 uv ( j )
 j  , j  0,1, 2,...
v 2
 Transfer Function
• Cross Correlation
 uv ( j ) 
ruv ( j )    j  ruv ( j ) u ,
 u v v
• Model Identification based on ruv(j)
– Under null hypothesis ruv(j) = 0
ruv ( j) ~ normal (0,1 N  j )
– Identify the finite-parameter structure of (B)
• Model Estimation using ARMAX(p,q):
yt     ( B) xt   t ,  t ~ ARMA( p, q)
 Transfer Function
• Example
– U.S. Consumption-Income Relationship
(dpi_pce8.do)