1
$\begingroup$

I am using cross correlation to demonstrate a potential link between two time series (ext & co). Both series are strongly autocorrelated, so it is difficult to assess the dependence between the two series. For a quick preliminary analysis, the cross correlation shows a clear (somehow delayed) link between the two time series, although it might spurious. CCF. Prewhitening seems to be the best option; I will prewhiten my x variable by fitting an ARIMA process and then use the coefficients to filter my variable y. My question is if I should estimate the coefficients of the ARIMA process (for example using auto.arima) using my series x or by using the residuals of the OLS regression of x on y.

$\endgroup$
3
  • 1
    $\begingroup$ If you are primarily interested in a link between two time series (and not their transformations), will you be answering the right question if you use prewhitened data?.. $\endgroup$ Jan 13, 2016 at 20:23
  • $\begingroup$ Yes the right question is being answered though a single filter pre-whitening operation (not two filters !) . See onlinecourses.science.psu.edu/stat510/node/75 for a basic ( largely correct) primer on this approach. Note that the single filter does not distort but amplifies any predictive relationship between the two original series. $\endgroup$
    – IrishStat
    Jan 13, 2016 at 22:45
  • $\begingroup$ Not quite. If two series share a common trend (stochastic or deterministic) and this trend is removed by prewhitening, you will entirely miss the obvious connection between the series. $\endgroup$ Apr 16, 2016 at 14:11

1 Answer 1

2
$\begingroup$

Yes Luigi your approach is the preferred one. The right question is being answered though a single filter pre-whitening operation (not two filters !) . See https://onlinecourses.science.psu.edu/stat510/node/75 for a basic ( largely correct) primer on this approach. Note that the single filter does not distort but clarifies any predictive relationship between the two original series.

$\endgroup$
1

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Not the answer you're looking for? Browse other questions tagged or ask your own question.