1

TIME SERIES ANALYSIS

USING EVIEWS

Prof.Dr. Nabeel M. Aljanabi

 Course Outline
2

Starting EVIEWS
Applied Regression Analysis
Linear regression, Dynamics, Dummy variables,
Causality analysis, VARs.
Nonstationary Models
Unit roots, Cointegration, Vector error correction
modelling (VECM).
Model Evaluation
 3

STARTING EVIEWS
 What is EViews?
4

An econometrics package, which provides data

analysis, regression and forecasting tools
 Useful for many different analyses
 Very user-friendly
 Excellent help function
 Workfile Created
5

Start Eviews
Select File/New/Workfile
 Defining the Workfile
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 Defining the Workfile
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Start Eviews
Select File/New/Workfile
Enter the frequency and the range
 Entering Frequency and Range
8

Frequency workfile Start date End date

Annual a 1990 1999
Semi-annual s 1990:1 1999:2
Quarterly q 1990:1 1999:4
Monthly m 1990:1 1999:12
Weekly* w 01/01/1990 31/12/1999
Daily[5 day]* d 01/01/1990 31/12/1999
Daily[7 day]* 7 01/01/1990 31/12/1999
Undated u 1 100
 Sample and Range
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 Information Needed to Import
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 name of the worksheet where the data are

(unnecessary if the data file is a worksheet)
 the number of variables
 where (cell) the data (numbers) begin
 Import Data
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 Import Data
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 Excel Worksheet
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 Importing the Excel Worksheet
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 Data
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 Examine the Contents
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 Examine the Contents
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 data
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19
 Time plot
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 Time plot
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 Time plot
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 Time plot
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 Scatter plot
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Drawing a scatterplot - Click the [View] button and choose Graph

 Scatter  Regression Line.
 Histogram plot
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Obtaining descriptive statistics and histograms. Click the [View]

button. Choose Descriptive Statistics  Histogram and Stats
 Descriptive Statistics
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 Descriptive Statistics
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 Displaying correlation and covariance matrices
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 The easiest way to display correlation and

covariance matrices is to highlight the relevant
series (using the mouse and the [Ctrl] key) and then
click Quick  Group Statistics  Correlations
(or Covariances if you want a covariance matrix).
 29

APPLIED REGRESSION
ANALYSIS
30 Linear regression
 Linear Regression with One Regressor
31

 Linear regression allows us to estimate, and make

inferences about, population slope coefficients.
Ultimately our aim is to estimate the causal effect on
Y of a unit change in X – but for now, just think of the
problem of fitting a straight line to data on two
variables, Y and X.
 The Population Linear Regression Model – general
notation
32

Yi = 0 + 1Xi + ui, i = 1,…, n

X is the independent variable or regressor

Y is the dependent variable
0 = intercept
1 = slope
ui = the regression error
The regression error consists of omitted factors, or possibly
measurement error in the measurement of Y. In general, these
omitted factors are other factors that influence Y, other than the
variable X
 This terminology in a picture: Observations on Y and X; the population
regression line; and the regression error (the “error term”):
33
 The Ordinary Least Squares Estimator
34

How can we estimate 0 and 1 from data?

Recall that Y was the least squares estimator of Y: Y solves,
n
min m  (Yi  m )2
i 1

By analogy, we will focus on the least squares (“ordinary least

squares” or “OLS”) estimator of the unknown parameters 0
and 1, which solves,
n
min b0 ,b1  [Yi  (b0  b1 X i )]2
i 1
35
 Least squares assumption.
36

For any given value of X, the mean of u is zero:

Example: Test Scorei = 0 + 1STRi + ui, ui = other factors

 What are some of these “other factors”?
 Is E(u|X=x) = 0 plausible for these other factors?
 Estimate Equation Using EViews
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 Continue/ Estimate Equation
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 Continue/ Estimate Equation
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 Continue/ Estimate Equation
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 Continue/ Estimate Equation
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42 multivariate regression model
 multivariate regression model
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 Select variables
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 output
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 serial correlation test
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 Serial Correlation LM Test:
47
 Multicollinearity Test
48
 Multicollinearity Test
49
 Variance Inflation Factors (VIF)

50
 Heteroskedasticity test
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 Heteroskedasticity test
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53 System Equation
 System Equation
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55
56
57
58 Dynamics Linear regression
 Dynamics Linear regression
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 ADL Model
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 ADL Model
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62 Causality analysis
 Causality analysis
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 Causality analysis
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65 VARs
 Vector autoregression VAR
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 The VAR(1) model
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68
 VAR Estimate
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 VAR Estimate
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 VAR Estimate
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 VAR Lag Order
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 Impulse Response function (IRF)
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 Impulse Response function (IRF)
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 Variance Decomposition
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 Variance Decomposition
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 77

NONSTATIONARY
MODELS
 The Procedure to Analysis
78

Economic
Economic or
or Financial
Financial Theory
Theory

Summary
Summary Statistics
Statistics of
of Data
Data

Luukkonen et al. (1988) Linearity Test

If reject
not reject

Linear
Linear Model
Model Nonlinear
Nonlinear Model
Model
Basic Advanced
Econometric Econometric
 The Procedure to Analysis
79

Time
Time Series
Series Data
Data

Unit
Unit Root
Root Test
Test

Non-Stationarity Staionaruty
Dickey-Fuller

Augmented DF
Orders of Integration H0: Yt ~ I(1)
The same Difference H1: Yt ~ I(0)
Phillips-Perron
VAR in
E-G DF-GLS, NP
Level
J-J ARDL
Bounding H0: Yt ~ I(0)
H-I KPSS
KPSS
Test
H1: Yt ~ I(1)
Cointegration Test
 The Procedure to Analysis
80

Unit
Unit Root
Root Test
Test
Staionaruty

Cointegration
Cointegration Test
Test
Yes No

EG,JJ, KPSS ARDL

UECM
(Pesaran et
VECM al., 2001) VAR in
VAR in
Level
differ

Model
Model Specification
Specification
 The Procedure to Analysis
81

Model
Model Estimation
Estimation

Economic or Finance
Implication

Impulse Variance Granger

Resp Dec Causality
 The Procedure to Analysis
82

Heteroskedastic Goodness-of-fit
ACH-LM Teat R square

Normality Diagnostic Error specification

Checking
Jarque-Bera N Ramsey’s RESET

Series autocorrelation
sationarity
Ljung-Box Q, Q 2
CUSUM (square)
83 Unit roots
Stationary Time Series
 Time Series modeling
 A series is modeled only in terms of its own past values and
some disturbance.

 Autoregressive, AR (1)
yt   0   1 yt  u t ut ~ WN (0, ) 2

 Moving Average, MA (1)

ut   t    t 1

84
Stationary Time Series
 Box-Jenkins (1976) ARMA (p, q) model
yt   0  1 yt 1     p yt  p  ut  1ut 1     q ut  q
p q
  0    i yt i    i u1i
i 1 i 0

 The necessary and sufficient stationarity condition


i 1
i 1

85
 Stationary Time Series
 The determination of the order of an ARMA process
 Autocorrelation function (ACF)
cov( yt , yt  por q )
 ( por q) 
var( yt )

 Partial ACF (PACF) p 1

 p   j 1 ( p  2, j   pp p  2, p  j )  p  j
 ( p)  , p3
1   j 1 ( p  2, j   pp p  2, p  j )  j
p 1

i2 p
 Q( p
Ljung-Box  T (T  2)
Q) statistic ~  p2
i 1 T - i 86
 Stationary Time Series
87

e series is AR(1)

P* = 1
 Non-stationary Time Series
88

 How to achieve stationary?

 DSP = Difference stationary process
• Yt ~ I(1) = D d 1 y  yt  yt 1  yt
t

• Yt ~ I(2) = D d  2 y  y  y  2 y
t t t 1 t

 TSP = Trend stationary process

yt   0  1t  t ŷt
Non-stationary Time Series

 Unit Root Test

 ADF Test p
 : Yt  Yt 1    i Yt i   t De-data
i 1 p
 t : Yt     t   Yt 1    i Yt i   t De-trend
i 1
p
 u : Yt    Yt 1    i Yt i   t De-mean
i 1

iid
Yt  t  rt   t  t ~ N (0, 2 )
 KPSS
89
 Non-stationary Time Series
90

 Selection Criteria of the Lag Length

 Schwartz Bayesian Criterion (SBC)
SSR k ln T
min SBC  ln( ) Small sample
T T

 Akaike Information Criterion (AIC)

SSR
min AIC  T ln( )  2k Big sample
T

k parameters
T observations
SSR sum of squared residuals
 Non-stationary Time Series
91

Reject H0
Non-stationary Time Series

 Engle-Granger 2-Stage Cointegration Test

 Step 1: regress real exchange rate
et   0  1lst   2luswpit   3lukwpit  ut


t u
uerror term
Step 2:
t 1  t ADF Unit Root Test

H0 :  0
 Hypothesis
H1 :   0
If reject H0, u
t~I(0
)
We support PPP
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93 Cointegration
 Cointegration
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 Cointegration
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96 Vector error correction modelling (VECM).
 Vector error correction modelling (VECM).
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 Vector error correction modelling (VECM).
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 99

MODEL
 Model
100
 Model
101
 Model/variable
102
 Solve the model
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 Extended the range
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 Solution sample
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 Forecast variables
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 GDP forecast
107

% Change gdp at current price (Baseline)

30

25

20

15

10

0
1980 1985 1990 1995 2000 2005 2010 2015 2020
 In sample forecast
108

50,000

40,000

30,000

20,000

10,000

0
1980 1985 1990 1995 2000 2005 2010 2015 2020

gdp at current price (Baseline)

gdp at current price
 109

SEASONAL
ADJUSTMENT
110
111
112
113
114
115
116
 Log Transformations
117

 Appropriate when the variability in a series

increases as its level increases, and when all
values of the series are positive
 Change multiplicative relationships into

additive relationships
 Increases/decreases can be thought of in terms

of percentages
 Problem: Extreme Values
118

 Solution:
 These effects can be estimated also, but they can be
difficult to estimate when seasonality and trend are
present
119
120
121

 Which of these values are outliers (extreme

values)?
 Models
122

Multiplicative model:
Yt = St´ × Tt × It Additive model:
Yt = St´ + Tt + It
= St ´ × N t
= St´ + Nt
where
where
St´ = St × TDt × Ht
St´ = St + TDt + Ht
 Hodric-prescott filter
123
124
125

Hodrick-Prescott Filter (lambda=1600)

3,000

2,500

2,000
300

200 1,500

100 1,000

0
500
-100

-200

-300
92 94 96 98 00 02 04 06 08 10 12

Real Gross Domestic Product At Market Prices

Trend
Cycle
 X12-filter
126
127
128
129
3,200

2,800

2,400

2,000

1,600

1,200

800
92 94 96 98 00 02 04 06 08 10 12 14 16 18 20

GDP_SA
GDP_TC
Real Gross Domestic Product At Market Prices
 Tramo-filter
130
131

50,000

40,000

30,000

20,000

10,000

0
92 94 96 98 00 02 04 06 08 10 12 14 16 18 20

Final seasonally adjusted series

Final trend-cycle
Money Supply M2 ( million JD)