iv) As a first pre-test exercise in the study, the student managed to run the DickeyFuller test and obtained the output below. Explain the results for the first two variables. (5 Marks)
AUGMENTED DICKEY FULLER TEST FOR UNIT ROOT
VARIABLES AT LEVEL AR (0)
VARIABLES AT FIRST DIFFERENCE AR (1)
Variable
Lags 0
Test statistic
5% critical value
P-value
Lags 0
Test statistic
5% critical value
P-value
Economic growth (LogGDP)
(1)
-0.700
-2.972
0.8467
(1)
-4.386
-2.975
0.0003
Tourist arrivals
(1)
-1.756
-2.972
0.4023
(1)
-2.936
-2.983
0.0413
Tourism expenditure
(1)
-0.810
-2.972
0.8163
(1)
-2.897
-2.975
0.0458
Tourism receipts
(1)
-1.800
-2.972
0.3807
(1)
-3.291
-2.983
0.0153
Travel services
(1)
-1.055
-2.972
0.7328
(1)
-4.458
-2.975
0.0002
v) Given an AR(1) model, use appropriate mathematical expressions to discuss the process of the Dickey-Fuller test. Further, discuss what would happen to this test if there is a presence of serial correlation. (5 Marks)
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