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TIME SERIES ANALYSIS OF BOUNDED ECONOMIC VARIABLES
Author(s) -
Wallis Kenneth F.
Publication year - 1987
Publication title -
journal of time series analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.576
H-Index - 54
eISSN - 1467-9892
pISSN - 0143-9782
DOI - 10.1111/j.1467-9892.1987.tb00425.x
Subject(s) - mathematics , bounded function , transformation (genetics) , series (stratigraphy) , econometrics , consistency (knowledge bases) , complement (music) , unemployment rate , limiting , statistics , unemployment , logarithm , economics , mathematical analysis , discrete mathematics , paleontology , biology , mechanical engineering , biochemistry , chemistry , complementation , engineering , gene , phenotype , economic growth
. We propose the logistic transformation as an appropriate instantaneous transformation for time series variables known to be bounded, such as those measured as proportions, and present an application to two unemployment rate series. Since such series are often analysed in logarithmic form, the two transformations are compared, and a likelihood ratio selection criterion is developed, which marginally favours the logistic transformation. We consider the question of transformation bias and its removal. The logistic transformation of bounded variables ensures consistency with the limiting behaviour and is symmetric, thus on transforming and modelling the unemployment rate or its complement, the employment rate, equivalent results are obtained.