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Backshift Notation: Nonseasonal Processes in Backshift Form
Backshift Notation: Nonseasonal Processes in Backshift Form
Tran
CHAPTER 12
1. BACKSHIFT NOTATION
Backshift operator B, defined as
BYt = Yt-1
BZt = Zt-1
B2Yt = Yt-2
B3Zt = Zt-3
BC = C (C is a constant)
BZt = B(Yt ! )
= BYt ! B
Zt!1 = Yt!1 !
BZt-1 = Zt-2
(1!B)Zt = Zt ! Zt!1
(1!B)2Zt = (1!B)(1!B)Zt
= (1 ! 2B + B2)Zt
= (1!B)(Zt ! Zt!1)
Thus Zt could be deviation from realization or process mean, depending on the context.
= (1-B)Zt = Zt - Zt!1
= (1-B)2Zt
= Zt ! 2Zt!1 + Zt!2
In general,
AR(1)
Algebraic Form:
(1)
Backshift Form:
(2)
Econ 415/Tran Chapter 12/Page 3
substituting , we get
MA(1)
Algebraic Form:
(3)
Backshift form:
(4)
Substituting , we get
4. DIFFERENCING
Consider a process for a variable Yt which must be differenced once because its mean is not
constant. Suppose that the first difference of Yt are a series of independent random shocks, a
random walk model, i.e.
Econ 415/Tran Chapter 12/Page 4
Yt ! Yt!1 = at
Zt ! Zt-1 = at
(Yt ! ) - (Yt-1 ! ) = at
Yt ! Yt-1 = at
Note that drops out when is applied to Zt = Yt ! . This happens with any process
even when we apply multi-level differencing, i.e. when d > 0.
Examples
ARIMA(1,1,1)
Algebraic form:
First apply the first difference to Yt and Yt-1, then express it in a common algebraic form:
(1)
Backshift Form:
(2)
5. SUMMARY OF PROCEDURE
To write nonseasonal ARIMA processes in backshift form, follow the following
procedure:
1. Start with a variable Yt that has been transformed (if necessary) so that it has a constant
variance (by Box-Cox transform).
4. Multiply the result from step 3 by the AR operator whose general form is
( ).
For a specific process, assign the appropriate numerical value to p, the order of the AR
part of the process. If any coefficient with subscripts less than p are zero, exclude
those terms from the AR operator.
( ).
For specific process, assign the appropriate numerical value to q, the order of the MA
portion of the process. If any the coefficients at lag less than q are zero, exclude them
from the MA process.
7. Combining the above 6 steps, a nonseasonal process in backshift notation has this general
form:
where
Now we want to show that both forms are equivalent for ARIMA(1,1,1).
Algebraic Form:
(1)
Backshift Form:
Econ 415/Tran Chapter 12/Page 6
(2)
Substituting Zt = Yt ! , we obtain
Thus let C = 0, then (1) and (2) are equivalent. This means that the first differences have a mean
of zero.
6. EXERCISES:
(1) Write the following in both algebraic form and backshift form:
(a)
(b)
(c)
(3) Write the following in both ARIMA(p,d,q) notation and common algebraic form:
(a)
(b)
Econ 415/Tran Chapter 12/Page 7
(c)