TIME SERIES DATA

 Quantities that represent or trace the

values taken by a variable over a
period such as a month, quarter or
year.
 Time series data occurs wherever the
same measurements are recorded on
a regular basis.
e.g.
 Closing prices of stocks
 Country’s unemployment rate
CROSS-SECTIONAL DATA
 It is a type of data collected by
observing many subjects (such as
individuals, firms, countries or
regions) at the same point of time, or
without regard to differences in time.

e.g.
 GDP of European countries in 2010.
 Unemployment rate of Asian
countries in 2014.
PANEL DATA
 Data where multiple cases (people,
firms, countries etc) were observed
at two or more time periods.

 It combines both TIME SERIES and

CROSS-SECTIONAL data.

e.g.
 Income and expenditure of different
employees in different time (years)
 EXAMPLE OF PANEL DATA
PERSON YEAR INCOME AGE SEX
1 2011 1300 27 1
1 2012 1600 28 1
1 2013 2000 29 1
2 2011 2000 38 2
2 2012 2500 39 2
3 2013 2800 40 2
NON-STATIONARY DATA
 Non-stationary data, as a rule, are
unpredictable and cannot be
modeled or forecasted.

 The results obtained by using non-

stationary time series may be
spurious in that they may indicate a
relationship between two variables
where one does not exist.
NON-STATIONARY DATA
 It has a variable variance and a mean
that does not remain near, or returns
to a long-run mean over time
 e.g.
SEE THE GRAPH ON NEXT SLIDE
STATIONARY DATA
 The stationary process reverts
around a constant long-term mean
and has a constant variance
independent of time.

 It has a constant mean, variances and

covariances over time.

 e.g. SEE THE GRAPH ON NEXT SLIDE.

TYPES OF NON-STATIONARY PROCESSES
 Pure Random Walk (Yt = Yt-1 + εt )

 Random Walk with Drift

(Yt = α + Yt-1 + εt )

 Deterministic Trend (Yt = α + βt + εt )

 Random Walk with Drift and

Deterministic Trend
(Yt = α + Yt-1 + βt + εt )
 TREND
AND
DIFFERENCE
STATIONARY
AUTOREGRESSIVE DISTRIBUTED
LAG MODEL
(ARDL)
Conditions under which ARDL is used

 Time Series Data

 Dependent & Independent Variables

 Lag effect of time on both DV & IV

 Some variables are stationary at I(0)

and some are at I(1)
ARDL (continue…..)
 Some variables are I(1) and some
may be I(0), but none is I(2)

 GDPt = αt + βt(Exp) + βt(Cons) + ε t

 First we find optimum levels of lags.

 Through Akaike Criterion(AIC) and

Schwarz Criterion(SIC)
ARDL (continue…..)
 Criteria for optimum lags :

 Lower the value of AIC & SIC, better

the ARDL model

 In order to apply above, formulate

different models with different lags.

 Quick -> Estimate Equation -> Enter

six lags.
ARDL (continue…..)
 D(GDP) C D(GDP(-1)) D(GDP(-2))
…………….. D(CONS(-6)) including
other three variables GDP(-1) EXP(-1)
 CONS(-1)

 Last three variables are included to

check if they have long-run
relationship
ARDL (continue…..)
 Now, check SERIAL CORRELATION

View -> Residual Diag. -> Serial

 Correlation-LM Test -> enter lag=2

 Ho : Model has no Serial Correlation

 It is also desirable for the best model.

ARDL (continue…..)
 Now, check STABILITY
 View -> Stability Diag. -> Recursive
Estimates -> click CUSUM Test

 ARDL estimates must lie in between

two red lines.
ARDL (continue…..)
 To check LONG-RUN ASSOCIATION :
(Bound Test)

View -> Coeff. Diag. -> Wald Test

 Ho = Variables have no long-run

relationship, means don’t move
together.

 Enter : C(8) = C(9) = C(10) = 0

ARDL (continue…..)
 The result brings ‘F’ statistics value.

 It is to be compared with Pesaran

Value with at 0.05.

 Pesaran Table gives Lower and Upper

Bound.

 If ‘F’ stats is > Upper Bound, Ho is

rejected
ARDL (continue…..)
 Hence, all variables have long-run
relationship (move together).

 Now, let’s develop the LONG-RUN

MODEL
ARDL (continue…..)
 Quick -> Estimate Equation

 Derive the Residual, copy and paste it

and name it as ECT (Error Correction
Term), then press OK.

 Now, develop the model with lag 2

including ECT(-1), then press OK.
ARDL (continue…..)
 The results with ECT(-1) will show
“SPEED-UP ADJUSTMENT” means
speed to adjust towards long-run
equilibrium.
 Criteria : the value of ECT(-1) should
be ‘-ve’ and ‘significant’.
 If ECT(-1) = 0.649, means the whole
system can get back to long-run
equilibrium at 64.9%
ARDL
 After including ECT(-1) we need to
check Serial Correlation and Stability
again.

If they are ok, the model is


considered to be the BEST.

 If not, exclude one variable and

check it again.
ARDL
 Finally, Short-Run Causality is also to
be checked which is not desirable for
ARDL Model.

 Therefore, ARDL Model should have :

-No Serial Correlation
-Stable
-Long-Run Equilibrium
-No Short-Run Causality from IV
towards DV.