33. AUTOCORRELATION & PARTIAL AUTOCORRELATION FUNCTION | AR, MA and ARMA series| Eco Entrance | IES

#economterics#autocorrelation #partialautocorrelation #timeseries #inference
Autocorrelation, also known as serial correlation, is the correlation of a signal with a delayed copy of itself as a function of delay. Informally, it is the similarity between observations as a function of the time lag between them. The analysis of autocorrelation is a mathematical tool for finding repeating patterns, such as the presence of a periodic signal obscured by noise, or identifying the missing fundamental frequency in a signal implied by its harmonic frequencies. It is often used in signal processing for analyzing functions or series of values, such as time domain signals. Unit root processes, trend stationary processes, autoregressive processes, and moving average processes are specific forms of processes with autocorrelation.
In time series analysis, the partial autocorrelation function (PACF) gives the partial correlation of a stationary time series with its own lagged values, regressed the values of the time series at all shorter lags. It contrasts with the autocorrelation function, which does not control for other lags. This function plays an important role in data analysis aimed at identifying the extent of the lag in an autoregressive model. The use of this function was introduced as part of the Box–Jenkins approach to time series modelling, whereby plotting the partial autocorrelative functions one could determine the appropriate lags p in an AR (p) model or in an extended ARIMA (p,d,q) model.

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