Name: Shubham Jain Section: E Enrol No: 405/2019

Assignment - 2 (TSA)
1. Plotting GDP

GDP
3.0E+12

2.5E+12

2.0E+12

1.5E+12

1.0E+12

5.0E+11

0.0E+00
60 65 70 75 80 85 90 95 00 05 10 15
Fig 1: GDP of India

LGDP
29

28

27

26

25

24
60 65 70 75 80 85 90 95 00 05 10 15
Fig 2: Log GDP of India
Name: Shubham Jain Section: E Enrol No: 405/2019

To make GDP time series linear, logarithm transformation has been applied to it as shown in above
figures. Clearly, LGDP is a random walk model with drift which is non-stationary. To make it,
stationary, it’s first difference is taken as shown in Figure 3.

DLGDP
.3

.2

.1

.0

-.1

-.2

-.3
60 65 70 75 80 85 90 95 00 05 10 15
Fig 3: Differenced Log GDP of India

2. Test for Stationarity – ADF TEST

To test for stationarity of the differenced time series in Fig 3, ADF test is performed on it as shown in
Fig 4.

Fig 4: ADF TEST on DLGDP

Name: Shubham Jain Section: E Enrol No: 405/2019

As t-statistics of the ADF test as shown in Fig 4. is less than all critical values, we reject the null
hypothesis that DLGDP contains unit root i.e LGDP is stationary at difference one.

3. Autocorrelation
Now, let’s validate our above result with the autocorrelation test as shown in Fig 5.

Fig 5. Correlogram for DLGDP

From fig 5., we can see that there are no significant autocorrelations in the time series and the
appropriate model for DLGDP will be ARMA(0, q) or ARMA(p, 0) or ARMA(p, q) where p, q = 0, 1.

4. Finding Appropriate ARMA Model

Fig 6. ARMA Models

As can be seen from Fig 6., According to AIC & BIC, ARMA(1, 1) is more appropriate. But since AR(1)
& MA(1) coefficients are non-significant, we will use ARMA(0, 0) as the final model. It’s summary is
given in Fig 7.
Name: Shubham Jain Section: E Enrol No: 405/2019

Fig 7. Summary of ARMA(1, 1)

Name: Shubham Jain Section: E Enrol No: 405/2019

5. Residual Diagnostics

Fig 8. Residuals of ARMA(0, 0) & it’s Correlogram

From the figure above, we can see that the residuals of the model ARMA(0, 0) are stationary as
there are no autocorrelations in them.
Name: Shubham Jain Section: E Enrol No: 405/2019

6. Model Forecasts

Fig 9. Dynamic Forecasts

The above figure shows forecast from 2015 to 2019. Next Period forecast for 2020 is given below:

GDP=exp(LGDP(-1) + 0.074)

GDP = exp(28.70 + 0.074) = 3136096532530.9