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ARIMA Model

The autoregressive integrated moving average (ARIMA) process generates nonstationary series that are integrated of order D, denoted I(D). A nonstationary I(D) process is one that can be made stationary by taking D differences. Such processes are often called difference-stationary or unit root processes.

A series that you can model as a stationary ARMA(p,q) process after being differenced D times is denoted by ARIMA(p,D,q). The form of the ARIMA(p,D,q) model in Econometrics Toolbox™ is

(5-13)

where denotes a Dth differenced time series, and is an uncorrelated innovation process with mean zero.

In lag operator notation, . You can write the ARIMA(p,D,q) model as

(5-14)

Here, is an unstable AR operator polynomial with exactly D unit roots. You can factor this polynomial as where is a stable degree p AR lag operator polynomial (with all roots lying outside the unit circle). Similarly, is an invertible degree q MA lag operator polynomial (with all roots lying outside the unit circle).

The signs of the coefficients in the AR lag operator polynomial, , are opposite to the right side of Equation 5-13. When specifying and interpreting AR coefficients in Econometrics Toolbox, use the form in Equation 5-13.

    Note:   In the original Box-Jenkins methodology, you difference an integrated series until it is stationary before modeling. Then, you model the differenced series as a stationary ARMA(p,q) process [1]. Econometrics Toolbox fits and forecasts ARIMA(p,D,q) processes directly, so you do not need to difference data before modeling (or backtransform forecasts).

References

[1] Box, G. E. P., G. M. Jenkins, and G. C. Reinsel. Time Series Analysis: Forecasting and Control. 3rd ed. Englewood Cliffs, NJ: Prentice Hall, 1994.

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