Economics of Finance Summer Module

Boğaziçi University, Department of Economics Course Code: EC 532.02 Course Name: Selected Topics in Financial Econometrics Problem Set 2 Lecturer: Burak Saltoglu Deadline final exam Instructions:  This is a group project, each group can have up to 2 students  We may be use your last data in this assignement.  You are free to use any source you want to use as we discussed in the class

QUESTIONS

1. testing for unit roots a. Conduct the unit root tests (ADF) for the data you have used in PS1. b. State in a table which series are I(0) and I(1) or I(2) if any. c. If you find any of your series I(1) then conduct an ARIMA forecast.

2. AR(1) simularion (Given the following model)

Simulate the AR(1) process when ,0.5 a. without drift b. with a drift c. with drift and time trend

d. then conduct ADF tests each of these three specifications. e. in a table summarize your findings

3. By using TUIK download total money supply, GDP (levels), exports and imports a. test the existence of cointegration between money supply and gdp b. test the existence of cointegration between exports and imports c. if there is co-integration relationship in the above case test the existence of error correction mechanism. d. clearly comment on the speed of adjustment coefficient.