Unit Root - Properties and Characteristics of Unit-root Processes

Properties and Characteristics of Unit-root Processes

  • Shocks to a unit root process have permanent effects which do not decay as they would if the process were stationary
  • As noted above, a unit root process has a variance that depends on t, and diverges to infinity
  • If it is known that a series has a unit root, the series can be differenced to render it stationary. For example, if a series is I(1), the series is I(0) (stationary). It is hence called a difference stationary series.

Read more about this topic:  Unit Root

Famous quotes containing the words properties and/or processes:

    “A drop of water has the properties of the sea, but cannot exhibit a storm. There is beauty of a concert, as well as of a flute; strength of a host, as well as of a hero.”
    —Ralph Waldo Emerson (1803–1882)

    “Our bodies are shaped to bear children, and our lives are a working out of the processes of creation. All our ambitions and intelligence are beside that great elemental point.”
    —Phyllis McGinley (1905–1978)