Hello everyone,
I have a monthly dataset, time-series, from about 1962 until 2008 where I want to regress the effect of several variables on the federal funds rate. It turns out however, when I perform the ADF-test, that most of my variables have a unit root.
1) My research supervisor suggested to take the first difference of all variables, and indeed in this case the unit root disappears. However, I'm having a very hard time trying to interpret a first difference regression. Am I not researching whether the trend of the variable accelerates or decelerates in that case? Because that wouldn't say anything about the effect of the indep variables on the ffr (dep var), would it?
2) On the following website (https://www.researchgate.net/post/Is...for_Panel_data) I interpret that in case the first difference is stationary, your data is stable. Does this mean that I can just regress my normal data because the first difference of all my variables does not have a unit root?
3) I read a bit about ARIMA models. Supposedly solving for a unit root?
The point is, I have a unit root and I need to take care of this problem. Yet, I'm no econometrics expert and I have never learned anything about the unit root at my university. So how can I solve this or work my way around this? I'm also not familiar with ARIMA models.
I hope you can comment on points 1,2 and 3 or suggest point 4 to solve my problem.
Thanks in advance!
I have a monthly dataset, time-series, from about 1962 until 2008 where I want to regress the effect of several variables on the federal funds rate. It turns out however, when I perform the ADF-test, that most of my variables have a unit root.
1) My research supervisor suggested to take the first difference of all variables, and indeed in this case the unit root disappears. However, I'm having a very hard time trying to interpret a first difference regression. Am I not researching whether the trend of the variable accelerates or decelerates in that case? Because that wouldn't say anything about the effect of the indep variables on the ffr (dep var), would it?
2) On the following website (https://www.researchgate.net/post/Is...for_Panel_data) I interpret that in case the first difference is stationary, your data is stable. Does this mean that I can just regress my normal data because the first difference of all my variables does not have a unit root?
3) I read a bit about ARIMA models. Supposedly solving for a unit root?
The point is, I have a unit root and I need to take care of this problem. Yet, I'm no econometrics expert and I have never learned anything about the unit root at my university. So how can I solve this or work my way around this? I'm also not familiar with ARIMA models.
I hope you can comment on points 1,2 and 3 or suggest point 4 to solve my problem.
Thanks in advance!
