Assignment 1a - EC665 Winter 2021
Assignment 1a - EC665 Winter 2022
Due 20 Jan 2022 @16:59 via Dropbox
Use the dataset QUARTERLY.XLS
a. Section 2.7 in the textbook examines the price of finished goods as measured by the
producer price index (PPI). Form the logarithmic change in the PPI as dlyt = ln(ppit)−
ln(ppit−1). Verify that an AR(‖1,3‖) model of dlyt series has a better in-sample fit than
an AR(3) or an ARMA(1,1) specification.
b. How does the out-of-sample fit of the AR(‖1,3‖) compare to that of the ARMA(1,1)?
c. What is the problem in comparing the out-of-sample fit of the AR(‖1,3‖) to that of
the AR(3)?
d. Experiment with an AR(5) and an ARMA(2,1) model to see how they compare to the
AR(‖1,3‖).
Page 1