Skip to Main Content
Economic and Business Forecasting: Analyzing and Interpreting Econometric Results
book

Economic and Business Forecasting: Analyzing and Interpreting Econometric Results

by John Silvia, Azhar Iqbal, Kaylyn Swankoski, Sarah Watt, Sam Bullard
March 2014
Beginner to intermediate content levelBeginner to intermediate
400 pages
11h 35m
English
Wiley
Content preview from Economic and Business Forecasting: Analyzing and Interpreting Econometric Results

CHAPTER 7

Testing for a Unit Root and Structural Break Using SAS Software

This chapter employs SAS software to test for a unit root and structural break in a time series. We demonstrate, using the U.S. consumer price index (CPI) as a case study, how to test for a unit root using the Dickey-Fuller test; the Phillips-Perron test; and the Kwiatkowski, Phillips, Schmidt, and Shin test. Testing for a unit root determines whether the data series is stationary and if the series has a constant mean and variance over time. A basic ordinary least squares (OLS) analysis assumes that data is stationary. If the data is nonstationary, the OLS results are not reliable.

Another important feature of applied econometric analysis is to identify whether a time series contains a structural break. Furthermore, if an economic, financial, or business data series contains a structural break, then the series acts differently during different periods. Therefore, any estimated relationship in one time period does not work in another time period. Three different approaches are utilized to identify a structural break in the U.S. home prices: (1) a dummy-variable method, (2) the Chow test, and (3) the state-space approach. Last, the application of the Hodrick-Prescott (HP) filter is shown using the U.S. corporate profits series.

TESTING A UNIT ROOT IN A TIME SERIES: A CASE STUDY OF THE U.S. CPI

Is there an underlying pattern to a time series that could mislead analysts when they attempt to identify the behavior ...

Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Start your free trial

You might also like

Handbook of Economic Forecasting

Handbook of Economic Forecasting

Graham Elliott, Allan Timmermann
Handbook of Economic Forecasting

Handbook of Economic Forecasting

Graham Elliott, Allan Timmermann
Rethinking Valuation and Pricing Models

Rethinking Valuation and Pricing Models

Carsten Wehn, Christian Hoppe, Greg N. Gregoriou

Publisher Resources

ISBN: 9781118497098Purchase bookDownloads