ECON 497A: Forecasting

Empirical homework assignment 7

The data for the homework assignment is available in EasyReg (former) default format (*) and in Excel CSV format (**). This data file contains two historic annual time series for the US, taken from the famous Nelson-Plosser data set:

  • The log of unemployment
  • The log of the consumer price index

    For each of the two time series:

    1. Determine which version of the Augmented Dickey-Fuller (ADF) unit root test is appropriate (no intercept, intercept only, or intercept and trend).
    2. Use first the default lag lengths p of the auxiliary regression, and then determine the actual value of p.
    3. Conduct the ADF test for the new p. Discuss briefly the results.
    4. Simulate the small sample p-values, using 500 simulations. Discuss briefly the results (compare with 3).

    (*) Click on the link, and save the file as a text file on your hard disk via the "Save as .." option of your web browser. Note that Internet Explorer will try to save the file as a web page (*.htm format). You have to overrule that.

    (**) If you use Internet Explorer and you click on the link the file will be automatically imported in Excel, provided that you have installed Excel. Then use the "Save as .." option of Excel to save the file on your hard disk. Netscape and Mozilla Firefox will display the file as a text file. Therefore, if you use Netscape or Firefox follow the procedure under (*).