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Autoregressive models
Models with lagged variable
The creation of an autoregressive model generates a new
predictor variable by using the Y variable lagged 1 or more
periods.
yt f ( yt 1 , yt 2 ,..., yt p , t )
Dependent variable is a function of itself at the
previous moment of period or time.
2
yt b0 bi yt i et
i 1
where:
yt the dependent variable values at the moment t,
yt-i (i = 1, 2, ..., p) the dependent variable values at the
moment t-i,
bo, bi (i=1,..., p) regression coefficient,
p autoregression rank,
et disturbance term.
3
b0
b1
.
b .
..
b p
y p1
y p2
y ..
.
.
.
yn
1 y p y p1 ... y1
1 y p1 y p y 2
.
X .. .. ..
.
. . .
.
. . .
1 y y
y
n p
n1 n2
yt b0 b1 yt 1 et
A second-order autoregressive model considers the effect of
relationship between consecutive values in a series as well as
the correlation between values two periods apart.
yt b0 b1 yt 1 b2 yt 2 et
5
H0; p 0
(The highest-order parameter does not contribute to the
prediction of Yt)
H1; p 0
(The highest-order parameter is significantly meaningful)
bp
S (b p )
to reject H0 if
Z Z
or if
Z Z
Z Z Z
8
Z 0,1 1,645
Z 0, 05 1,960
Z 0, 02 2,236
Z 0, 01 2,576
Z 0, 001 3,291
autoregressive model would be obtained through leastsquares regression. A test of the hypothesis that the new
highest-order term is 0 would then be repeated.
10
11
Example 1
t
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
yt
1.89
2.46
3.23
3.95
4.56
5.07
5.62
6.16
6.26
6.56
6.98
7.36
7.53
7.84
8.09
yt b0 b1 yt 1 b2 yt 2 et
b ( X T X ) 1 X T y
p=
ytmean =
n=
k=
2
5,570667
13
2
12
t
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
yt
yt-1
yt-2
1.89
2.46
3.23
3.95
4.56
5.07
5.62
6.16
6.26
6.56
6.98
7.36
7.53
7.84
8.09
1.89
2.46
3.23
3.95
4.56
5.07
5.62
6.16
6.26
6.56
6.98
7.36
7.53
7.84
1.89
2.46
3.23
3.95
4.56
5.07
5.62
6.16
6.26
6.56
6.98
7.36
7.53
Calculations
p=
2
ytmean = 5.570667
n=
13
k=
2
13
b0
b=
1
1
1
1
1
2,46
3,23
3,95
4,56
5,07
1,89
2,46
3,23
3,95
4,56
5,62
5,07
6,16
5,62
6,56
6,26
6,16
6,98
6,56
6,26
7,36
6,98
6,56
7,53
7,84
8,09
1
1
1
7,36
7,53
7,84
6,98
7,36
7,53
3,23
3,95
4,56
5,07
5,62
b1
b2
6,16
y=
6,26
X=
14
13
XTX=
73,58
67,63
73,58
67,63
451,3932 420,842
420,8423 393,5
79,21
XTy=
479,6185
446,1821
1,103369
b=
0,804936
0,08338
15
t
1
2
yt
yt-1
yt-2
y^t
yt - y^t
1,89
2,46
1,89
3,23
2,46
1,89
3,2411
-0,0111
4
5
6
7
8
9
3,95
4,56
5,07
5,62
6,16
6,26
3,23
3,95
4,56
5,07
5,62
6,16
2,46
3,23
3,95
4,56
5,07
5,62
3,908428
4,552185
5,103229
5,564609
6,049848
6,530372
0,041572
0,007815
-0,03323
0,055391
0,110152
-0,27037
0,001728
6,11E-05
0,001104
0,003068
0,012134
0,073101
-1,62067
-1,01067
-0,50067
0,049333
0,589333
0,689333
10
11
12
13
14
15
6,56
6,98
7,36
7,53
7,84
8,09
6,26
6,56
6,98
7,36
7,53
7,84
6,16
6,26
6,56
6,98
7,36
7,53
6,655891
6,90571
7,268797
7,609693
7,778216
8,041921
-0,09589
0,07429
0,091203
-0,07969
0,061784
0,048079
0,009195
0,005519
0,008318
0,006351
0,003817
0,002312
0,989333 0,97878
1,409333 1,98622
1,789333 3,201714
1,959333 3,838987
2,269333 5,149874
2,519333 6,34704
0,126831
31,70494
0,000123 -2,34067
5,47872
2,62656
1,021447
0,250667
0,002434
0,347314
0,47518
16
Goodness of fit
Variance
S2 =
0,012683
Standard error of the estimate
S =
0,112619
Variance and covarince matrix
0,070057 -0,06697
2
D (b) =
-0,06697 0,073708
0,059581 -0,06732
0,059581
-0,06732
0,061791
0,264684
D(b1) =
0,271493
D(b2) =
0,248577
b=
1,103369
0,804936
0,08338
Indetermination coefficient
0,004
Determination coefficient
R2 =
0,996
17
Z b2=
Calculations
Z 0,05=
0,33543
1,96
autoregressive model:
yt b0 b1 yt 1 et
and then check if Beta1 is statistically significant.
18
t
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
yt
yt-1
1,89
2,46
3,23
3,95
4,56
5,07
5,62
6,16
6,26
6,56
6,98
7,36
7,53
7,84
8,09
1,89
2,46
3,23
3,95
4,56
5,07
5,62
6,16
6,26
6,56
6,98
7,36
7,53
7,84
REGLINP
0,914
0,0173
99,573%
2800,6
40,241
0,904
0,09850
0,120
12
0,172
Z b1=
52,921
Z 0,05=
1,96
The first-order parameter contributes to the prediction of Y
19
Example 2
Y - annual income taxes
Year
Yt
Yt-1
1
55,4
2
61,5
55,4
3
68,7
61,5
4
87,2
68,7
5
90,4
87,2
6
86,2
90,4
7
94,7
86,2
8
103,2
94,7
9
119
103,2
10
122,4
119
11
131,6
122,4
12
157,6
131,6
13
181
157,6
14
217,8
181
15
244,1
217,8
Yt-2
55,4
61,5
68,7
87,2
90,4
86,2
94,7
103,2
119
122,4
131,6
157,6
181
Yt-3
55,4
61,5
68,7
87,2
90,4
86,2
94,7
103,2
119
122,4
131,6
157,6
20
Yt-2
55,4
61,5
68,7
87,2
90,4
86,2
94,7
103,2
119
122,4
131,6
157,6
181
Yt-3
55,4
61,5
68,7
87,2
90,4
86,2
94,7
103,2
119
122,4
131,6
157,6
Z b3
0,647227
Z 0,05
1,96
The third-order parameter does not contribute to the prediction of Y
21
Yt-2
55,4
61,5
68,7
87,2
90,4
86,2
94,7
103,2
119
122,4
131,6
157,6
181
Yt-3
55,4
61,5
68,7
87,2
90,4
86,2
94,7
103,2
119
122,4
131,6
157,6
Z b2
0,054917 Z 0,05
1,96
The second-order parameter does not contribute to the prediction of Y
22
Yt-2
55,4
61,5
68,7
87,2
90,4
86,2
94,7
103,2
119
122,4
131,6
157,6
181
Yt-3
55,4
61,5
68,7
87,2
90,4
86,2
94,7
103,2
119
122,4
131,6
157,6
Z b1
23,74814
Z 0,05
1,96
The first-order parameter does contribute to the prediction of Y
23
Autogregressive Modeling
Used
for Forecasting
Takes Advantage of Autocorrelation
1st
Error
1. Choose p:
2. Form a series of lag predictor variables
Yi-1 , Yi-2 , Yi-p
3. Use Excel to run regression model using
all p variables
4. Test significance of Bp