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Stationarytimeseriesslides PDF
Stationarytimeseriesslides PDF
E[Yt] = 0, var(Yt) = 2, j = 0, j 6= 0
Example: Gaussian White Noise (GW N (0, 2))
Yt = t, t iid N (0, 2)
Example: White Noise (W N (0, 2))
Remarks
Yt = t
E[t] = 0, var(t) = 2, cov(t, tj ) = 0
Nonstationary Processes
Any covariance stationary time series {Yt} can be represented in the form
Yt = 0 + 1t + t, t W N (0, 2)
E[Yt] = 0 + 1t depends on t
Yt = +
0 = 1,
j=0
j=0
Xt = Yt 0 1t = t
Example: Random Walk
Yt = Yt1 + t, t W N (0, 2), Y0 is fixed
t
X
= Y0 +
j var(Yt) = 2t depends on t
j=1
Note: A simple detrending transformation yield a stationary process:
Yt = Yt Yt1 = t
j tj , t W N (0, 2)
2j <
Properties:
E[Yt] =
0 = var(Yt) = 2
j=0
2j <
j = E[(Yt )(Ytj )]
= E[(t + 1t1 + + j tj + )
(tj + 1tj1 + )
= 2( j + j+1 1 + )
= 2
k=0
k k+j
ARMA(p,q) model:
Yt = 1(Yt1 ) + + p(Yt2 )
+t + 1t1 + + q tq
t W N (0, 2)
Lag operator notation:
(L)(Yt ) = (L)t
(L) = 1 1L pLp
(L) = 1 + 1L + + q Lq
Yt = Yt1 + t, t W N (0, 2)
Yt = t+1Y1 + tY0 + t0 + + t1 + t
= t+1Y1 +
= t+1Y1 +
t
X
iti
i=0
t
X
iti, i = i
i=0
j
X
it+ji
i=0
Dynamic Multiplier:
dYj
dYt+j
=
= j = j
d0
dt
If || < 1 then
lim j = lim j = 0
i=1
j = (1)
i=1
= (L) evaluated at L = 1
j tj =
j=0
j tj
j=0
j=0
j =
1
<
1
If = 1 then
Yt = Y0 +
t
X
j=0
j , j = 1, (1) =
j=0
j Lj = 1 + L + 2L2 +
such that
(1 L)1(1 L) = 1
Trick to find Wold form:
Yt = (1 L)1(1 L)Yt = (1 L)1t
=
=
=
j=0
X
j=0
X
j=0
j Lj t
j tj
j tj , j = j
E[Yt] =
c
=
1
Variance of AR(1)
= 2 0 + 2 (by stationarity)
2
0 =
1 2
Note: From the Wold representation
X
2
j
2
2j
0 = var
tj =
=
1 2
j=0
j=0
= j1 (by stationarity)
2
j = j 0 = j
1 2
Autocorrelations:
j =
j
0
j 0
= j = j
0
0.99
0.9
0.75
0.5
0.25
half-life
68.97
6.58
2.41
1.00
0.50
ARMA(p, 0) Model
Mean-adjusted form:
Yt = 1(Yt1 ) + + p(Ytp ) + t
t W N (0, 2)
E[Yt] =
Xt
Xt1
Xt2
..
Xtp+1
or
(L)(Yt ) = t
(L) = 1 1L pLp
1 2
1 0
0 1
..
..
0 0
...
...
p
X
t1
0
Xt2
0
Xt3
..
..
Xtp
1
0
t = F t1 + vt
(pp)(p1)
(p1)
(p1)
Yt = + Xt
(L)Xt = t
Regression Model formulation
Yt = c + 1Yt1 + + pYtp + t
(L)Yt = c + t, c = (1)
t
0
0
..
0
Example: AR(2)
Xt = 1Xt1 + 2Xt2 + t
or
"
Xt
Xt1
"
1 2
1 0
#"
Xt1
Xt2
"
t
0
Yt = +
"
Xt+j
Xt+j1
1 2
1 0
#j "
t
0
=
#
"
1 2
1 0
+ +
"
#j+1 "
1 2
1 0
Xt1
Xt2
#"
t+j1
0
with j = (1, 1) element of Fj provided all of the eigenvalues of F have modulus less than 1.
Finding Eigenvalues
#
(j+1
(j)
Note:
F2 =
"
1 2
1 0
#"
1 2
1 0
21 + 2 12
1
2
"
t+j
0
Fx = x (F Ip)x = 0
F Ip is singular det(F Ip) = 0
Example: AR(2)
Fj
"
j tj , 0 = 1
j=0
= det
1 2
1 0
1 2
1
= 2 1 2
"
0
0
#!
21 + 42
, i = 1, 2
2
These root may be real or complex. Complex roots induce
periodic behavior in yt. Recall, if i is complex then
T1 =
a2 + b2 = modulus
Fj = (TT1) (TT1)
= Tj T1
a = R cos(), b = R sin()
q
t11 t12
t21 t22
Then
i = a + bi
R =
"
and
lim Fj = T lim j T1 = 0
Note:
j T1
Fj = T
"
#"
t11 t12
=
t21 t22
j
1
0
j
2
#"
t11 t12
t21 t22
so that
(j)
f11
= (t11t11)1 + (t12t22)2
j
Yt = 0.6Yt1 + 0.2Yt2 + t
1 + 2 = 0.8 < 1
"
#
0.6 0.2
F =
1
0
The eigenvalues are found using
= c11 + c22 = j
i =
where
c1 + c2 = 1
1 =
Then,
j
2 =
0.6 +
0.6
21 + 42
q2
(0.6)2 + 4(0.2)
2
(0.6)2 + 4(0.2)
2
j
j = c1(0.84) + c2(0.24)j
= 0.84
= 0.24
Here
Yt = 0.5Yt1 0.8Yt2 + t
1 + 2 = 0.3 < 1
"
#
0.5 0.8
F =
1
0
2.95
0.5
a =
= 0.25, b =
= 0.86
2
2
i = 0.25 0.86i
q
q
modulus = R = a2 + b2 = (0.25)2 + (0.86)2 = 0.895
Note:
21 + 42 = (0.5)2 4(0.8) = 2.95
complex eigenvalues
Then
i = a bi, i = 1
q
(21 + 42)
1
a =
, b=
2
2
a
a
cos() =
= cos1
R
R
2
period =
Here,
R = 0.895
0.25
1
= cos
= 1.29
0.985
2
period =
= 4.9
1.29
Note: the period is the length of time required for the
process to repeat a full cycle.
1 1z 2z 2 = (1 1z)(1 2z)
j = c11 + c22
Rj [cos(j) + sin(j)]
so that
1
1
, z2 =
1
2
are the roots of the characteristic equation. The values
1 and 2 are the eigenvalues of F.
z1 =
i Lj
j=0
1
(L)
= (1 1L)1 (1 pL)1
X
X
X
j
j
j
=
1Lj
2Lj . . .
2Lj
j=0
j=0
j=0
j=0
1Lj
j=0
2Lj . . .
j=0
2Lj t
j Lj
or
j=0
1 = (L)(L)
1 = (1 1L 2L2)
(1 + 1L + 2L2 + )
Yt = c + 1Yt1 + + pYtp + t
c = (1 )
= 1 + 2 + + p
Note: if = 1 then (1) = 1 = 0 and z = 1 is
a root of (z) = 0. In this case we say that the AR(p)
process has a unit root and the process is nonstationary.
E[Yt] =
0 = 1 1 + 2 2 + + p p + 2
j = 1 j1 + 2 j2 + + p jp
j = 1j1 + 2j2 + + pjp
Yt = + t + t1 = + (L)t
(L) = 1 + L, t W N (0, 2)
Moments:
E[Yt] =
var(Yt) = 0 = E[(Yt )2]
= E[(t + t1)2]
= 2(1 + 2)
1 = E[(Yt )(Yt1 )]
= 2
1 = 1 =
0
1 + 2
j = 0, j > 1
= (1 L)t, =
(1 L)1(Yt ) = t
()j Lj (Yt ) = t
j=0
so that
t = (Yt ) + (Yt1 ) + ()2 (Yt2 ) +