FIGURE 21.6 Correlogram of white noise error term u. AC = autocorrelation, PAC = partial autocorrelation (see Chapter 22), Q-Stat = Q statistic, Prob = probability.

autocorrelation. The solid vertical line in this diagram represents the zero axis; observations above the line are positive values and those below the line are negative values. As is very clear from this diagram, for a purely white noise process the autocorrelations at various lags hover around zero. This is the picture of a correlogram of a stationary time series. Thus, if the correlo-gram of an actual (economic) time series resembles the correlogram of a white noise time series, we can say that time series is probably stationary.

810 PART FOUR: SIMULTANEOUS-EQUATION MODELS

Now look at the correlogram of a random walk series, as generated, say, by (21.3.13). The picture is as shown in Figure 21.7. The most striking feature of this correlogram is that the autocorrelation coefficients at various lags are very high even up to a lag of 33 quarters. As a matter of fact, if we consider lags of up to 60 quarters, the autocorrelation coefficients are quite high; the

Sample: 2 500 Included observations: 499

Autocorrelation |
Partial Correlation |
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