Klaus Neusser - Time Series Econometrics

Springer International Publishing Switzerland 2016

Klaus Neusser 1

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Time series analysis is an integral part of every empirical investigation which aims at describing and modeling the evolution over time of a variable or a set of variables in a statistically coherent way. The economics of time series analysis is thus very much intermingled with macroeconomics and finance which are concerned with the construction of dynamic models. In principle, one can approach the subject from two complementary perspectives. The first one focuses on descriptive statistics . It characterizes the empirical properties and regularities using basic statistical concepts like mean, variance, and covariance. These properties can be directly measured and estimated from the data using standard statistical tools. Thus, they summarize the external (observable) or outside characteristics of the time series. The second perspective tries to capture the internal data generating mechanism . This mechanism is usually unknown in economics as the models developed in economic theory are mostly of a qualitative nature and are usually not specific enough to single out a particular mechanism. Thus, one has to consider some larger class of models. By far most widely used is the class of autoregressive moving-average (ARMA) models which rely on linear stochastic difference equations with constant coefficients. Of course, one wants to know how the two perspectives are related which leads to the important problem of identifying a model from the data.

The observed regularities summarized in the form of descriptive statistics or as a specific model are, of course, of principal interest to economics. They can be used to test particular theories or to uncover new features. One of the main assumptions underlying time series analysis is that the regularities observed in the sample period are not specific to that period, but can be extrapolated into the future. This leads to the issue of forecasting which is another major application of time series analysis.

Although its roots lie in the natural sciences and in engineering, time series analysis, since the early contributions by Frisch ( Each of these topics alone would justify the treatment of time series analysis in economics as a separate subfield.