Unit root testing, Macroeconomics

Assignment Help:

Firstly, it is imperative that I investigate the stochastic properties of each series considered in the model prior to estimating the effects of oil price shocks on macroeconomic activity. This is done by analysing the order of integration from using a unit root test. Specifically, in this project the Augmented Dicky-Fuller (ADF) test will be used.Asteriou & Hall (2011) write the three different types of ADF equations as;

 

516_Unit Root Testing.png

Where Yt = each variable (GDP, Inflation, Interest rates, Exchange rates, Unemployment and Oil prices.)

The difference between each equation is the appearance of  and  respectively. These are deterministic elements, noted as the constant and trend respectively.

For this test, the hypotheses are stated as;

The null hypothesis,  infers that a unit root exists, whereas the alternative hypothesis,  infers that there is no root. Once this test has been passed, an appropriate lag length will need to be determined for the VAR model. If any variable does not pass this test and contains a unit root, then it will be invalid and will not be analysed in the further stages.


Related Discussions:- Unit root testing

Exchange rate, what are the types of exchange rate

what are the types of exchange rate

Basic concepts and terminology, when domestic currency becomes more valuabl...

when domestic currency becomes more valuable in terms of foreign currency, the domestic currency is said to have

Explain about the circular-flow of economic activities, Explain about the c...

Explain about the circular-flow of economic activities. Circular-Flow of Economic Activities: Economic Agents:    a. Households b. Firms Where they interact:

Macroeconomic variables, Furthermore it can be seen that there are interest...

Furthermore it can be seen that there are interesting relationships between the remaining variables. Firstly, at the 95% significance level it can be seen that interest rates Grang

Interest rates, Interest Rates (R) - I feel that it is important to include...

Interest Rates (R) - I feel that it is important to include a variable which represents the monetary sector of the economy because those inflationary pressures which are expected t

Market supply of labour, Use a graphical illustration to describe briefly w...

Use a graphical illustration to describe briefly what the influence of each of the following would be on the market supply of labor:(a) an increase in immigration (b) more women en

Dynamic muliplier, distinguish between state and dynamic multiplier and ill...

distinguish between state and dynamic multiplier and illusrate balanc budget theorm in hindi

IS and LM model, An economy shows the following features C=50+0.9(Y-T) T=1...

An economy shows the following features C=50+0.9(Y-T) T=100 I=100-5i G=100 L=0.2Y-10i M/P=100 X=20 M=10+0.1Y a)Obtain the IS and LM for this economy b)Find out the equilibrium inc

Estimate the interest rate and minimize risk, 1. In December 1979 it was po...

1. In December 1979 it was possible to buy a January 1980 contract in gold at the New York Commodity Exchange for $487.50 per ounce and sell an October 1981 contract for $614.80 on

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd