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Abstract
This collection of formulae is to be used during the courses and at the
written examinations for Econometrics and Time Series Analysis.
Students should, and must bring this collection of Formulae to the
exam. There will be NO HANDING out of this collection at the exam
location.
Also note that AT THE EXAM, THERE MUST BE NO NOTES OF
ANY KIND in this collection.
If students have made notes in this collection during the course, they
must print and bring a new copy without any notes to the exam. The
sta¤ at the exam location are instructed to randomly check the collection
for notes. If they …nd any notes of any kind in this collection, this will
be reported to the responsible teacher, and the student will be subject to
an investigation whether he or she should be reported to the disciplinary
committé for cheating.
Also note, that this means that students CANNOT MAKE ANY
NOTES IN THIS COLLECTION DURING THE EXAM. Of course, notes
made during the exam will be observationaly indistinguishable from notes
made beforehand. To remedy this situation, any notes will be be assumed
to be written before the exam, and thus will be reported.
Moreover, students are NOT allowed to pass this collection between
them at the exam.
1
Contents
1 Test -templete 3
2 Basic Statistics 4
2.1 Expectation, Variance and Co-variance . . . . . . . . . . . . . . . 4
3 Regression 5
3.1 Single linear regression . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Z and t-tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Con…dence intervals . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Multiple Regression . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 F-tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.6 Normality test . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4 Time Series 8
4.1 Back shift operator . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Di¤erence operator . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Seasonal Di¤erence operator . . . . . . . . . . . . . . . . . . . . . 9
4.4 Geometric series . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 Ljung-Box Test . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.6 Test of an individual correlation . . . . . . . . . . . . . . . . . . 10
4.7 ADF unit root test . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5 Math 12
5.1 Quadratic identities . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Power function . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 Exponential function . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.4 The logarithmic function . . . . . . . . . . . . . . . . . . . . . . . 13
acknowledged.
2
1 Test -templete
Whenever you perform a formal test on a written exam in Econometrics or Time
Series Analysis, you must follow the outline in the template below for full score
on that task.
3
2 Basic Statistics
2.1 Expectation, Variance and Co-variance
Some basics, for any random variables X, Y; Z and W and constants a, b; c
and d we have
E (aX) = aE (X) (1)
h i
2
V ar (X) = E (X E (X)) (2)
4
3 Regression
3.1 Single linear regression
The single linear regression is given by
Yi = 1 + 2 Xi + ui (7)
c=Y cX
1 2
b H0
j j
zObs = N (0; 1) (10)
b
j
and when we have to estimate the error term variance, we need to use
b H0
j j
tObs = tn k:
bb
j
5
3.3 Con…dence intervals
Con…dence intervals: For a normally distributed N (0; 1) variable such as
b
j j
zObs = N (0; 1) (11)
b
j
Pr z =2 zObs z =2 =1 : (12)
Pr tn k; =2 tObs tn k; =2 =1 : (14)
Rj2 would be the R2 from the regression of Xj upon an intercept and all the
other regressors in the original model.
6
3.5 F-tests
To test linear restrictions - note that we in this situation have two models, one
unrestricted, (the original model) and one model where the restrictions of the
null are imposed/implemented (the restricted model). Any linear restriction
can be tested using
2 2
RU R RR =m
Fobs = 2 Fm;n k; (16)
(1 RU R ) = (n k)
where
2
RU R is the coe¢ cient of determination for the UnRestricted model
2
RR is the coe¢ cient of determination for the Restricted model
m is the number of (linear) restrictions (in the null hypothesis)
n is the number of observations
k is the number of regression coe¢ cients (parameters) in the regression
line of the UnRestricted model (including the intercept, if there is one).
7
4 Time Series
4.1 Back shift operator
Let fYt g be a stochasic process. The back-shift operator B is de…ned as
B 0 Yt = Yt 0
B 1 Yt = Yt 1
B 2 Yt = Yt 2
and
B j Yt = Yt j:
B j c = c:
for all j:
r1 Yt = Yt Yt 1
also
j
rj = 1 B1
Note that for a constant c we have
1
rc = 1 B1 c
rc = c Bc
rc = c c
rc = 0:
8
4.3 Seasonal Di¤erence operator
Let fYt g be a stochasic process. The seasonal di¤ erence-operator rs is de…ned
as
r1s Yt = Yt Yt s
We note that
1
r1s = (1 Bs)
2
r2s = (1 Bs)
and
j
rjs = (1 Bs)
Note that for a constant c we have
1
rc = (1 B s ) c
rc = c Bsc
rc = c c
rc = 0
1 j 1
j=0 r = 1 r for jrj < 1
1 j 1
j=0 (B ) = 1 B for j j < 1
1 j 1
j=0 (B ) = 1 B for j j < 1
where B denotes the back-shift operator and and are a constants (parame-
ters).
9
4.5 Ljung-Box Test
The Ljung-Box test tests whether several autocorrelations (K of them) are zero
simultaneously, i.e.
H0 : 1 = ::: = K = 0
H1 : at least one j 6= 0 for j = 1; :::; K
K
b2j
QLB = T (T + 2) j=1
T j
where T is the sample size and bj is the j:th autocorrelation, which under the
null and for large samples, follows a
2
(K p q P Q)
where p; q; P and Q are the order of the AR, MA, SAR, SMA parts respectively,
(assuming that we do the test on residuals from a model). That is, we subtract
from K the number of parameters estimated in the model at hand.
If the test is applied on raw data, of course, we have not estimated any
parameters, i.e. p = q = P = Q = 0:
which under the null and for large samples follows a N (0; 1) distribution and
where r
1
bk =
T
where T is the sample size.
10
4.7 ADF unit root test
To test for a unit root in Yt we run the (auxiliary) regression
and do a t-test of
H0 : a 0
H1 : a < 0
Where the null respresents that we have a unit root in Yt ; that is, that Yt I (1) :
The test statistic is the ’t-ratio’(not really a t-ratio since it follows a non-
standard distribution under the null)
b
a 0
ADFobs =
bba
NOTE: under the null of a unit root, the ADFobs does NOT follow any stan-
dard distribution. Its distribution is tabulated and is included in any software
that has this test, e.g. Eviews. So, when performing this test, following the
test-template, it is not nessecary to draw a …gure of the distribution under the
null and the assumptions (since that is unknown). However, it should be noted
that the reason for no …gure is the fact that the distribution is non-standard!
The decision to reject or not - is based on the p-value of the test, compared to
the chosen signi…cance level of the test.
11
5 Math
5.1 Quadratic identities
For a; b and c being real numbers, then
2
(a + b) = a2 + b2 + 2ab; (18)
2 2 2
(a b) = a + b 2ab; (19)
2 2
(a + b) (a b) = a b ; (20)
and
2
(a + b + c) = a2 + b2 + c2 + 2ab + 2ac + 2bc: (21)
r
(xy) = xr y r (24)
r
x xr
= (25)
y yr
s
(xr ) = xrs (26)
xr
= xr s
(27)
xs
1 1
x = (28)
x
n 1
x = (29)
xn
p
x = x1=2 (30)
1 1=2
p = x : (31)
x
12
note that a is a constant and that x is the variable. We have that
ax ay = ax+y (33)
y
(ax ) = axy (34)
x
(ab) = ax bx (35)
ax
= ax y
(36)
ay
a x ax
= (37)
b bx
ln 1 = 0; (39)
ln e = 1: (40)
ln (xy) = ln x + ln y; (41)
x
ln = ln x ln y; (42)
y
ln xp = p ln x; (43)
ln ex = x: (44)
13
6 Appendix: Statistical tables2
6.1 The Normal Distriubtion
2 These tables are courtesy of Dr. Thommy Perlinger, whose contribution is greatfully
acknowledged.
14
15
6.2 The Student’s t-distribution
16
6.3 The Chi-Square Distribution
17
6.4 The F-Distribution
18
19
20
21