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.
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