Assignment 3

16
ASSIGNMENT 3
14
12
10
0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
R3 R10 TBILL
Analysing the graph, we can notice that the time series is a stationary series, that means that the statistical
properties - mean, variance and covariance – of a process generating a time series do not change over time
Question 2.
Augmented Dickey-Fuller unit root test on TBILL
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -1.990137 0.2911

Test critical values: 1% level -3.465780
5% level -2.877012
10% level -2.575097
The Dickey Fuller test can be used to determine the presence of unit root in the series, and hence help us
understand if the series is stationary or not.
We can affirm that the series contains a unit root because the test statistic > critical value (1%, 5%, 10%)
and p-value > 0.05. So, we fail to reject the null hypothesis, which means the series is not stationary.
Null Hypothesis: TBILL has a unit root
Exogenous: Constant, Linear Trend
Exogenous: None
Lag Length: 7 (Automatic - based on SIC, maxlag=14)
t-Statistic Prob.* t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -2.193289 0.4901 Augmented Dickey-Fuller test statistic -0.856789 0.3436
Test critical values: 1% level -4.008428 Test critical values: 1% level -2.577522
5% level -3.434299 5% level -1.942555
10% level -3.141079 10% level -1.615559
Chancing the deterministic components, we can notice that both p-value and critical values are changed:
the critical value for 1%, 5% and 10% are larger and more negative because when we include trends, the
distribution has shifted to the left and therefore the critical value associated with the left tail of the
distribution also shifted to the left (so they became larger and more negative).
When we have no deterministic component, the critical value became smaller and absolute value. Also, the
p-value change, becoming smaller than the constant linear trend case and higher than the first case
Augmented Dickey-Fuller unit root test on R3
t-Statistic Prob.*

5% level -2.876677
10% level -2.574917
As well as for TBILL series, also here we can notice that since the p-value is not less than 0.05, we fail to
reject the null hypothesis.
This means the time series is non-stationary. In other words, it has some time-dependent structure and
does not have constant variance over time
Null Hypothesis: R3 has a unit root
Exogenous: None
t-Statistic Prob.*

5% level -1.942517
10% level -1.615583

t-Statistic Prob.*

5% level -3.433778
10% level -3.140772
Augmented Dickey-Fuller unit root test on R10
t-Statistic Prob.*

5% level -2.876515
10% level -2.574831
For the same reasons said before, p-value higher than 5% and the ADF value is higher than the critical
values, also this series contains a unit root, so we cannot reject the null hypothesis.

Exogenous: None
Bandwidth: 4 (Newey-West automatic) using Bartlett kernel Lag Length: 1 (Automatic - based on SIC, maxlag=14)
Adj. t-Stat Prob.* t-Statistic Prob.*
Phillips-Perron test statistic -1.504670 0.8249 Augmented Dickey-Fuller test statistic -0.632150 0.4424
5% level -3.433401 5% level -1.942499
10% level -3.140550 10% level -1.615594
Phillips-Perron (PP) unit root tests
Exogenous: Constant
Bandwidth: 6 (Newey-West automatic) using Bartlett kernel
Adj. t-Stat Prob.*
Phillips-Perron test statistic -2.273226 0.1818

5% level -2.876435
10% level -2.574788

Adj. t-Stat Prob.*

5% level -3.433401
10% level -3.140550

Exogenous: None
Adj. t-Stat Prob.*

5% level -1.942491
10% level -1.615600
As we can see, in all three cases the p-value is higher than 5% and also the Philips-Perron value is higher
than the critical values, which means that the t-bill series contains unit root and so we cannot reject the
null hypothesis
Adj. t-Stat Prob.*

5% level -3.433401
10% level -3.140550
Null Hypothesis: R3 has a unit root Null Hypothesis: R3 has a unit root
Exogenous: Constant Exogenous: None
Bandwidth: 5 (Newey-West automatic) using Bartlett kernel Bandwidth: 5 (Newey-West automatic) using Bartlett kernel
Adj. t-Stat Prob.* Adj. t-Stat Prob.*
Phillips-Perron test statistic -1.688457 0.4355 Phillips-Perron test statistic -0.858946 0.3427
5% level -1.942491
5% level -2.876435
10% level -1.615600
10% level -2.574788
Exogenous: Constant
Adj. t-Stat Prob.*

5% level -2.876435
10% level -2.574788
Null Hypothesis: R10 has a unit root Null Hypothesis: R10 has a unit root
Exogenous: Constant, Linear Trend Exogenous: None
Bandwidth: 4 (Newey-West automatic) using Bartlett kernel Bandwidth: 4 (Newey-West automatic) using Bartlett kernel
Adj. t-Stat Prob.* Adj. t-Stat Prob.*
Phillips-Perron test statistic -1.504670 0.8249 Phillips-Perron test statistic -0.613404 0.4506
5% level -3.433401 5% level -1.942491
10% level -3.140550 10% level -1.615600
As the computed p-value is greater than the significance level0.05, we cannot reject the null hypothesis, so
also these series are not stationary.
Kwiatkowski-Phillips-Schmidt-Shin (KPSS) stationarity test

Null Hypothesis: TBILL is stationary We reject the null hypothesis with
Exogenous: Constant 10% significance level, so we affirm
that for this level the series (t-bill) is
LM-Stat. not stationary.
Kwiatkowski-Phillips-Schmidt-Shin test statistic 0.353459 The KPSS value, on the other hand, is
Asymptotic critical values*: 1% level 0.739000 larger than 1% and 5% significance
5% level 0.463000 level which means that at these two
10% level 0.347000
levels we can’t reject the null
hypothesis, so the data are stationary.
Null Hypothesis: R3 is stationary Analysing the KPSS test for R3 series,

Exogenous: Constant
we can notice that the t-statistic value
is smaller than the values at 1% and 5%
LM-Stat. significance level, that means that we
do not reject the null hypothesis and
Kwiatkowski-Phillips-Schmidt-Shin test statistic 0.364126
Asymptotic critical values*: 1% level 0.739000 we affirm that for those level the data
5% level 0.463000 is stationary.
10% level 0.347000
The value of 10% significance level is
smaller than the t-statistic value, which means that we reject the null hypothesis, and the data are no
stationary.
Null Hypothesis: R10 is stationary
Exogenous: Constant
Bandwidth: 11 (Newey-West automatic) using Bartlett kernel For the R10 series is the same situation: we
LM-Stat. don’t reject the null hypothesis, confirming
that the date is stationary, only for the first
Asymptotic critical values*: 1% level 0.739000 two significance level (1%, 5%) because the
5% level 0.463000 value are larger than the KPSS test value.
10% level 0.347000
While, for the last significance level (10%) we
reject the null hypothesis, which mean that
the data are not stationary.
5
Question 3.
4
Maybe this now is stationary 3
The original data after applying the transformation 2

1
-1
-2
-3
-4
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
TBILL_DIFF R3_DIFF R10_DIFF
Question 4.
Null Hypothesis: TBILL_DIFF has a unit root
Exogenous: Constant
t-Statistic Prob.*
Analysing the new series with the
Augmented Dickey-Fuller test statistic -5.944934 0.0000 transformation, we can notice that since
5% level -2.877012 the p-value is less than 0.05, we reject
10% level -2.575097 the null hypothesis.
Null Hypothesis: TBILL_DIFF has a unit root The series doesn’t contain a unit root
because the test statistic < critical value
(1%, 5%, 10%) and p-value < 0.05. This
t-Statistic Prob.* means the time series is stationary.
5% level -3.434299
10% level -3.141079
Null Hypothesis: TBILL_DIFF has a unit root

Exogenous: None
t-Statistic Prob.*

5% level -1.942555
10% level -1.615559
Analysing the r3 and r10 with transformation we can affirm that the p value is 0.00, so less than 0.05 and
the t-statistic is higher than the critical values which means that the series are all stationary so, we reject
the null hypothesis because the series contains the unit root.
Phillips-Perron test
As the computed p-value is lower than the significance level 0.05, we reject the null hypothesis, so the
series contains a unit root which means that the series is stationary.
KPSS test
Null Hypothesis: TBILL_DIFF is stationary
Exogenous: Constant
LM-Stat.

Asymptotic critical values*: 1% level 0.739000
5% level 0.463000
10% level 0.347000
Null Hypothesis: R3_DIFF is stationary

Exogenous: Constant Analysing the KPSS test for t-bill, r3 and
Bandwidth: 4 (Newey-West automatic) using Bartlett kernel r10 series, we can notice that the t-
LM-Stat.
statistic value is smaller than the values
at 1%, 5% and 10% significance level,
Kwiatkowski-Phillips-Schmidt-Shin test statistic 0.155892 which means that we do not reject the
5% level 0.463000 null hypothesis and we affirm that for
10% level 0.347000 those level the data is stationary.
Null Hypothesis: R10_DIFF is stationary

Exogenous: Constant
LM-Stat.

5% level 0.463000
10% level 0.347000

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16

Augmented Dickey-Fuller test statistic -1.990137 0.2911

Augmented Dickey-Fuller test statistic -2.007150 0.2837

Augmented Dickey-Fuller test statistic -0.892539 0.3283

Null Hypothesis: R3 has a unit root

Augmented Dickey-Fuller test statistic -2.132063 0.5242

Augmented Dickey-Fuller unit root test on R10

Augmented Dickey-Fuller test statistic -1.630874 0.4648

Null Hypothesis: R10 has a unit root

Adj. t-Stat Prob.*

Phillips-Perron test statistic -2.273226 0.1818

Null Hypothesis: TBILL has a unit root

Adj. t-Stat Prob.*

Phillips-Perron test statistic -2.344224 0.4077

Null Hypothesis: TBILL has a unit root

Adj. t-Stat Prob.*

Phillips-Perron test statistic -1.104431 0.2440

Adj. t-Stat Prob.*

Phillips-Perron test statistic -1.760120 0.7203

Adj. t-Stat Prob.* Adj. t-Stat Prob.*

Adj. t-Stat Prob.*

Phillips-Perron test statistic -1.522974 0.5200

Adj. t-Stat Prob.* Adj. t-Stat Prob.*

Kwiatkowski-Phillips-Schmidt-Shin (KPSS) stationarity test

Null Hypothesis: R3 is stationary Analysing the KPSS test for R3 series,

The original data after applying the transformation 2

TBILL_DIFF R3_DIFF R10_DIFF

Null Hypothesis: TBILL_DIFF has a unit root

Augmented Dickey-Fuller test statistic -5.966439 0.0000

Kwiatkowski-Phillips-Schmidt-Shin test statistic 0.086658

Null Hypothesis: R3_DIFF is stationary

Null Hypothesis: R10_DIFF is stationary

Kwiatkowski-Phillips-Schmidt-Shin test statistic 0.214902

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