Hi guys, I have been struggling with this one, how do we test for a random walk?
Is it that b0 has to be 0.xxx and b1 close to 1 in absolutes
Or do we test it as H0:b0=0 and H0:b1 = 1
Thank you.
Your question may be related to unit root test in AR model.
procedure:Firstly,Performing first-differentiated processing.Yt=b0+b1Yt-1+e is changed to Yt-Yt-1=b0+(b1-1)Yt-1+e,b1’=b1-1;
then,using Dickey-Fuller Test.H0:b1’is equal to0 and H0:b1’ is not equal to 1.
caculating t value…