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    Question

    Which of the following statement is correct?

    1. If autoregressive parameter (p) in an ARIMA model is 1, it means that there is no auto-correlation in the series. 2. If moving average component (q) in an ARIMA model is 1, it means that there is auto-correlation in the series with lag 1. 3. If integrated component (d) in an ARIMA model is 0, it means that the series is not stationary.

    A Only 1 Correct Answer Incorrect Answer
    B Both 1 and 2 Correct Answer Incorrect Answer
    C Only 2 Correct Answer Incorrect Answer
    D None of the statements Correct Answer Incorrect Answer
    E All of the statements Correct Answer Incorrect Answer

    Solution

    Autoregressive component: AR stands for autoregressive.  Autoregressive parameter is denoted by p.  When p =0, it means that there is no auto-correlation in the series.  When p=1, it means that the series auto-correlation is till one lag.

    Integrated: In ARIMA time series analysis, integrated is denoted by d.  Integration is the inverse of differencing.  When d=0, it means the series is stationary and we do not need to take the difference of it.  When d=1, it means that the series is not stationary and to make it stationary, we need to take the first difference.  When d=2, it means that the series has been differenced twice.  Usually, more than two time difference is not reliable.

    Moving average component: MA stands for moving the average, which is denoted by q.  In ARIMA, moving average q=1 means that it is an error term and there is auto-correlation with one lag.

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