Applied Econometric

Time-Series Data Analysis

Types of Data
Data have been collected over a period
of time on one or more variables.
Data have associated with them a
particular frequency of observation (daily,
monthly or annually) or collection of
data points.

Time series data
1
Cross-sectional data
2
Panel data
3
The Procedure to Analysis
Summary Statistics of Data
Linear Model Nonlinear Model
Luukkonen et al. (1988) Linearity Test I
f

r
e
j
e
c
t


n
o
t

r
e
j
e
c
t

Basic
Econometric
Advanced
Econometric
Economic or Financial Theory
DF-GLS, NP
KPSS
Time Series Data
Unit Root Test
Phillips-Perron
Augmented DF
Dickey-Fuller
H0: Yt ~ I(1)
H1: Yt ~ I(0)
H0: Yt ~ I(0)
H1: Yt ~ I(1)
Non-Stationarity Staionaruty
VAR in
Level
Orders of Integration
The Procedure to Analysis
Difference
ARDL
Bounding
Test
E-G
J-J
H-I KPSS
The same
Cointegration Test
Model Specification
The Procedure to Analysis
Cointegration Test
No
VAR in
differ
Yes
UECM
(Pesaran
et al.,
2001)
VECM
Unit Root Test
Staionaruty
VAR in
Level
EG,JJ, KPSS ARDL
Economic or Finance
Implication
Model Estimation
Impulse
Resp
Variance
Dec
Granger
Causality
The Procedure to Analysis
The Procedure to Analysis
Diagnostic
Checking
Goodness-of-fit
R square
Error specification
Ramseys RESET
sationarity
CUSUM (square)
Series autocorrelation
Ljung-Box Q, Q
2
Heteroskedastic
ACH-LM Teat
Normality
Jarque-Bera N
Econometric Soft Packages
Package
EViews
Rats
GAUSS
Matlab
Microfit
EasyReg
STATA
TSP
Sources of Data
DataBase Website
AREMOS http://140.111.1.22/moecc/rs/pkg/tedc/tedc1.htm
TEJ Data bank http://www.tej.com.tw/
National Statistic,
ROC
http://www.stat.gov.tw/mp.asp?mp=4
DataStream Thomson Financial DataStream
CRSP http://www.crsp.chicagogsb.edu/
Compustat
http://www2.standardandpoors.com/portal/site/sp/
en/us/page.product/dataservices_compustat/2,9,
2,0,0,0,0,0,0,0,0,0,0,0,0,0.html
Example: PPP
Variables Frequency Sources
Currency exchange rate ls=Log (S)
Annual
(1979-1990)
Hayashi
(2000)
Price index of UK lukwpi=log (ukwpi)
Price index of US luswpi=log (uswpi)
Real exchange rate
t t t t
lukwpi luswpi ls e + =
Summary Statistics of Data
No trend
Summary Statistics of Data
Stationary Time Series
Time Series modeling
A series is modeled only in terms of its own past values
and some disturbance.

Autoregressive, AR (1)


Moving Average, MA (1)
1
=
t t t
u c | c
t t t
u y y + + =
1 0
o o
) , 0 ( ~
2
o WN u
t
Stationary Time Series
Box-Jenkins (1976) ARMA (p, q) model




The necessary and sufficient stationarity condition
q t q t t p t p t t
u u u y y y

+ + + + + + + = | | o o o
1 1 1 1 0
1
1
<

=
p
i
i
o

=

=

+ + =
q
i
i i
p
i
i t i
u y
0
1
1
0
| o o
Stationary Time Series
The determination of the order of an ARMA process
Autocorrelation function (ACF)



Partial ACF (PACF)



Ljung-Box Q statistic
) var(
) , cov(
) (
t
q p t t
or
y
y y
q p
or

=
2
1
2
~
-
2) ( ) (
p
p
i
i
i T
T T p Q _

=
+ =
3 ,
) ( 1
) (
) (
1
1
, 2 , 2
1
1
, 2 , 2
>


=

=

p p
p
j
j j p p pp j p
p
j
j p j p p pp j p p
| | |
| | |
|
Stationary Time Series
process
ACF PACF
AR (p)
Infinite: damps out
Finite: cuts off after lag
p
MA (q)
Finite: cuts off after lag
q
Infinite: damps out
ARMA(p, q)
Infinite: damps out Infinite: damps out
Stationary Time Series
P* = 1
e series is AR(1)
Non-stationary Time Series
Autoregressive integrated moving average
(ARIMA) model
If



If
1
1
>

=
p
i
i
o
Y series is explosive
1
1
=

=
p
i
i
o
Y series has a unit root
Non-stationary Time Series
How to achieve stationary?
DSP = Difference stationary process
Y
t
~ I(1) =

Yt ~ I(2) =

TSP = Trend stationary process

t t t t
d
y y y y D A = =

=
1
1
t t t t
d
y y y y D
2
1
2
A A A = =

=
t t
t y o o + + =
1 0 t
y

Non-stationary Time Series

Unit Root Test
ADF Test






KPSS
t i t
p
i
i t t
Y Y Y c o | t + A + = A

=

1
1
:
t i t
p
i
i t t u
Y Y Y c o | o t + A + + = A

=

1
1
:
t i t
p
i
i t t t
Y Y t Y c o | o t + A + + + = A

=

1
1
:
De-data
De-trend
De-mean
) , 0 ( ~
2
c
o c c q N r t Y
iid
t t t t
+ + =
Non-stationary Time Series
Selection Criteria of the Lag Length
Schwartz Bayesian Criterion (SBC)


Akaike Information Criterion (AIC)
k
T
SSR
T AIC 2 ) ln( min + =
k
T
T
T k
T
SSR
SBC
ln
) ln( min + =
SSR sum of squared residuals
observations
parameters
Small sample
Big sample
Non-stationary Time Series
Reject H0
Non-stationary Time Series
Engle-Granger 2-Stage Cointegration Test
Step 1: regress real exchange rate


Step 2: error term


Hypothesis
t t t t t
u lukwpi luswpi ls e + + + + =
3 2 1 0
o o o o
t t t
u u c u + = A
1
0 :
0 :
1
0
<
=
u
u
H
H
) 0 ( ~ I u
t
If reject H0,
We support PPP
ADF Unit Root Test
Non-stationary Time Series
Name as ppp
Non-stationary Time Series
Error Correction Model (ECM)



Where x is independent variables

Residual ( ) Diagnostic Test
t
d
i
i t
d
i
i t t t
x e ecm e | | o + A + A + + = A

=

=

1 1
1 0
t

Non-stationary Time Series