Saturday, January 21, 2012

The Dynamic Stability of AR Models - Tricking EViews

In this post I'm going to focus on understanding the extent to which there's an equivalence between two different ways of estimating an AR(p) model for a time-series, Yt, using EViews, and to see what information is generated in each case.

In particular, I want to show you how you can "trick" EViews into showing you if your estimated dynamic regression model is "dynamically stable". That is, if the estimated coefficients for the lagged values of Y are such that the model is stationary. If the lag-order is above 2, this isn't something that's always easy to do by just looking at the estimated coefficient values.