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Discrete time representation of continuous time ARMA processes

Chambers, M. J. and Thornton, M. A. (2012) Discrete time representation of continuous time ARMA processes. Econometric Theory, 28 (1). pp. 219-238. ISSN 1469-4360

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To link to this article DOI: 10.1017/S0266466611000181

Abstract/Summary

This paper derives exact discrete time representations for data generated by a continuous time autoregressive moving average (ARMA) system with mixed stock and flow data. The representations for systems comprised entirely of stocks or of flows are also given. In each case the discrete time representations are shown to be of ARMA form, the orders depending on those of the continuous time system. Three examples and applications are also provided, two of which concern the stationary ARMA(2, 1) model with stock variables (with applications to sunspot data and a short-term interest rate) and one concerning the nonstationary ARMA(2, 1) model with a flow variable (with an application to U.S. nondurable consumers’ expenditure). In all three examples the presence of an MA(1) component in the continuous time system has a dramatic impact on eradicating unaccounted-for serial correlation that is present in the discrete time version of the ARMA(2, 0) specification, even though the form of the discrete time model is ARMA(2, 1) for both models.

Item Type:Article
Refereed:Yes
Divisions:Faculty of Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
ID Code:22707
Publisher:Cambridge University Press

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