Applied Econometric Time Series

Amstat News asked three review editors to rate their top five favorite books in the September 2003 issue. Applied Econometric Times Series was among those chosen. Unique in that it covers modern time series analysis from the sole prerequisite of an introductory course in multiple regression analysis. Describes the theory of difference equations, demonstrating that they are the foundation of all time-series models with emphasis on the Box-Jenkins methodology. Considers many recent developments in time series analysis including unit root tests, ARCH models, cointegration/error-correction models, vector autoregressions and more. There are numerous examples to illustrate various techniques, many of which concern econometric models of transnational terrorism. The accompanying disk provides data for students to work with.

CHAPTER 1: Difference Equations

1

(62)

1. Time-Series Models

2

(5)

2. Difference Equations and Their Solutions

7

(3)

3. Solution by Iteration

10

(6)

4. An Alternative Solution Methodology

16

(4)

5. The Cobweb Model

20

(5)

6. Solving Homogeneous Difference Equations

25

(10)

7. Finding Particular Solutions for Deterministic Processes

35

(3)

8. The Method of Undetermined Coefficients

38

(7)

9. Lag Operators

45

(3)

10. Forward-Versus Backward-Looking Solutions

48

(5)

Summary and Conclusions

53

(1)

Questions and Exercises

54

(3)

Endnotes

57

(1)

Appendix 1: Imaginary Roots and de Moivre's Theorem

57

(2)

Appendix 2: Characteristic Roots in Higher-Order Equations

59

(4)

CHAPTER 2: Stationary Time-Series Models

63

(72)

1. Stochastic Difference Equation Models

63

(4)

2. ARMA Models

67

(1)

3. Stationarity

68

(4)

4. Stationarity Restrictions for an ARMA(p,q) Model

72

(6)

5. The Autocorrelation Function

78

(4)

6. The Partial Autocorrelation Function

82

(4)

7. Sample Autocorrelations of Stationary Series

86

(9)

8. Box-Jenkins Model Selection

95

(4)

9. The Forecast Function

99

(7)

10. A Model of the WPI

106

(5)

11. Seasonality

111

(7)

Summary and Conclusions

118

(1)

Questions and Exercises

119

(9)

Endnotes

128

(1)

Appendix: Expected Values and Variance

128

(7)

CHAPTER 3: Modeling Economic Time Series: Trends and Volatility

135

(76)

1. Economic Time Series: The Stylized Facts

135

(4)

2. ARCH Processes

139

(10)

3. ARCH and GARCH Estimates of Inflation

149

(3)

4. Estimating a GARCH Model of the WPI: An Example

152

(4)

5. A GARCH Model of Risk

156

(2)

6. The ARCH-M Model

158

(4)

7. Maximum Likelihood Estimation of GARCH and ARCH-M Models

162

(4)

8. Deterministic and Stochastic Trends

166

(10)

9. Removing the Trend

176

(5)

10. Are There Business Cycles?

181

(4)

11. Stochastic Trends and Univariate Decompositions

185

(10)

Summary and Conclusions

195

(1)

Questions and Exercises

196

(8)

Endnotes

204

(2)

Appendix: Signal Extraction and Minimum Mean Square Errors

206

(5)

CHAPTER 4: Testing for Trends and Unit Roots

211

(58)

1. Unit Root Processes

212

(9)

2. Dickey-Fuller Tests

221

(4)

3. Extensions of the Dickey-Fuller Test

225

(8)

4. Examples of the Augmented Dickey-Fuller Test

233

(6)

5. Phillips-Perron Tests

239

(4)

6. Structural Change

243

(8)

7. Problems in Testing for Unit Roots

251

(9)

Summary and Conclusions

260

(1)

Questions and Exercises

261

(4)

Endnotes

265

(1)

Appendix: Phillips-Perron Test Statistics

265

(4)

CHAPTER 5: Multiequation Time-Series Models

269

(86)

1. Intervention Analysis

270

(7)

2. Transfer Function Models

277

(9)

3. Estimating a Transfer Function

286

(5)

4. Limits to Structural Multivariate Estimation

291

(3)

5. Introduction to VAR Analysis

294

(6)

6. Estimation and Identification

300

(5)

7. The Impulse Response Function

305

(7)

8. Hypothesis Testing

312

(4)

9. Example of a Simple VAR: Terrorism and Tourism in Spain

316

(4)

10. Structural VARs

320

(4)

11. Examples of Structural Decompositions

324

(7)

12. The Blanchard and Quah Decomposition

331

(7)

13. Decomposing Real and Nominal Exchange Rate Movements: An Example

338

(4)

Summary and Conclusions

342

(1)

Questions and Exercises

343

(9)

Endnotes

352

(3)

CHAPTER 6: Cointegration and Error-Correction Models

355

(64)

1. Linear Combinations of Integrated Variables

356

(7)

2. Cointegration and Common Trends

363

(2)

3. Cointegration and Error Correction

365

(8)

4. Testing for Cointegration: The Engle-Granger Methodology

373

(4)

5. Illustrating the Engle-Granger Methodology

377

(4)

6. Cointegration and Purchasing-Power Parity

381

(4)

7. Characteristic Roots, Rank, and Cointegration

385

(8)

8. Hypothesis Testing in a Cointegration Framework

393

(3)

9. Illustrating the Johansen Methodology

396

(4)

10. Generalized Purchasing-Power Parity

400

(4)

Summary and Conclusions

404

(1)

Questions and Exercises

405

(5)

Endnotes

410

(2)

Appendix

412

(7)

STATISTICAL TABLES

419

(4)

A. Empirical Distributions of the (XXX) Statistics

419

(1)

B. Empirical Distributions of the (XXX) Statistics

420

(1)

C. Empirical Distributions of the Lambda(max) and Lambda(trace) Statistics

421

(2)

REFERENCES

423

(4)

AUTHOR INDEX

427

(2)

SUBJECT INDEX

429

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Applied Econometric Time Series

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