## Cointegration: Meaning, Tests and Models

Cointegration refers to the situation where the variables have a long-run or equilibrium relationship. Such variables move together over time and can be said to have a similar wavelength or…

## Order of Integration of a time series

If a non-stationary time series has to be differenced “d” times to make it stationary, that time series is integrated of order "d". In other words, the order of integration…

## ADF Test: Augmented Dickey Fuller Equation

The Augmented Dickey Fuller or ADF Test of stationarity is a unit root based test. It attempts to overcome the shortcomings of the original Dickey Fuller test. The Dickey Fuller…

## Dickey Fuller Test of Stationarity

The Dickey Fuller Test is a unit root based test of stationarity. The unit root based tests focus on the coefficient associated with the first lag of the time series…

## Autocorrelation function and Stationarity

The ACF or Autocorrelation Function is one of the most widely used methods to check for stationarity of a time series. Moreover, it also gives valuable insights into the autoregressive…

## Random Walk Model and Stationarity

The Random Walk Model is an example of a non-stationary time series. This model is often used to discuss and illustrate the concepts of stationarity, unit root process and order…

## Stationarity and Stationary Time Series

A time series is said to be stationary if its characteristics do not change with time. Moreover, a stationary time series can be identified as strictly stationary or weak stationary.…

## 3SLS: Three-Stage Least Squares

The Three-Stage Least Squares or 3SLS is applied to simultaneous equation models. It is different from single equation methods like Indirect Least Squares (ILS) and 2SLS because it is applied…

## Indirect Least Squares Estimation

The Indirect Least Squares (ILS) is a method used to estimate simultaneous equation models that are exactly identified. It is a single equation method because it is applied to each…

## Identification: Rank and Order Conditions

A simultaneous equation model is said to be identified if we can obtain unique estimates of the coefficients in the model. The equations in identified models have a unique structure…

## Simultaneous Equation Bias

The OLS and other single equation models assume that variables treated as independent variables are exogenous. This implies a one-way relationship between independent and dependent variables. It is assumed that…

## Adjusted R Square and its application

The Adjusted R square addresses the drawback of the R square by penalising the inclusion of additional independent variables. This ensures that additional unnecessary variables are not included simply to…

## R square and its drawback

The R square and Adjusted R square are often used to assess the fit of the Ordinary Least Squares model. These measures help ascertain how well the estimated model accounts…

## Ordinary Least Squares Estimation

OLS or Ordinary Least Squares is the most common method used in Econometrics. It is a linear regression technique that minimizes the sum of squared residuals (error term) to estimate…

## Interpreting ACF and PACF plots

Autocorrelation Function (ACF) and Partial Autocorrelation Function (PACF) can provide valuable insights into the behaviour of time series data. They are often used to decide the number of Autoregressive (AR)…

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