Chapter 2: Simple Models: Autoregression
A simple and yet quite useful model, the order 1 autoregressive, AR(1), model is used in this chapter to introduce some of the basic ideas in time series analysis and forecasting.
2.1.1 Terminology and Notation
Often, you can forecast series Yt simply based on past values Yt–1, Yt–2, …. For example, suppose Yt satisfies the following:
where et is a sequence of uncorrelated N(0, σ2) variables. The term for such an