A moving average process is one that has the following form: An AR(1) (autoregre

Question

A moving average process is one that has the following form:

An AR(1) (autoregressive process) has the following form:

Here we can let

be an i.i.d. normally distributed error term.

Suppose you have a time series of data on unemployment by quarter over the past 20 years. Is unemployment more likely to be a moving average process or AR(1) process? In addition, suggest another process (not one from the text) which you think might be a moving average process. Suggest another process (not from the text) which you think might be AR (1).

Explanation / Answer

both prosses AR(1) and  moving average process follow the same trend .

A moving average term in a time series model is a past error (multiplied by a coefficient).

Let wtiidN(0,2w), meaning that the wt are identically, independently distributed, each with a normal distribution having mean 0 and the same variance.

other similar models are MA(1) and MA(2) etc

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