What do we mean when we say that a variable is I(0), I(1), or I(2), in...
What do we mean when we say that a variable is I(0), I(1), or I(2), in terms of unit root tests?
Homework Answers
Here we use the unit root test to check the stationarity of a stochastic progress. So, if a stochastic is “I(0)”, => integrated of order zero, => the stochastic process is stationary. If a stochastic is “I(1)”, => integrated of order one, => the stochastic process is not stationary, but the first difference of the stochastic process is stationary.
Similarly, If a stochastic is “I(2)”, => integrated of order two, => the stochastic process is not stationary, but the 2nd difference of the stochastic process is stationary.
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