Thanks Richard. I am just trying to understand exactly what is R's arima
doing, and I am having a hard time. It seems that xreg is necessary to force
arima to include the constant term, but it appears that exactly how this is
done is not documented. If a series is not differenced, e.g. AR(1), then
does one still need to include xreg? If I take an AR(1) series with known
coefficient and use arima to do the fit using arima, i.e., arima(x = ar1,
order = c(1, 0, 0)), the estimated coefficient is not as good as a simple lm
fit using a one period lag. I am wondering if this should be the expected
result? Then, I tried Robert Shumway's sarima, and it gave me a much better
coefficient compared to arima (but still a little bit worse than lm). I
don't understand why this is happening. I guess I am even more confused...



On 1/12/08, Richard Saba <sabaric@charter.net> wrote:
>
>  Tom
>
> A constant term is not included in the model if any differencing is
> specified. The xreg= parameter is used to add other explanatory variables to
> the model. In your case xreg=1:length(x) adds a vector of 1's to the model.
> Robert Shumway and David Stoffer's website for their  "Time Series Analysis
> an its Applications with R Examples" text has several very helpful documents
> posted on the site (http://www.stat.pitt.edu/stoffer/tsa2/index.html)
> specific to time series analysis. The R ISSUES document address your
> question.
>
>
>
> Richard
>
>
>
> >Hi,
>
> >I am trying to understand exactly what xreg does in arima. The
> documentation for xreg says:"xreg Optionally, a vector or matrix of external
> regressors, which must have >the same number of rows as x." What does this
> mean with regard to the action of xreg in arima?
>
>
>
>
>
> >Apparently somehow xreg made the following two arima fit equivalent in R:
>
>
> >arima(x, order=c(1,1,1), xreg=1:length(x))
>
> >is the same as
>
> > arima(diff(x), order=c(1,0,1))
>
> >While I understand the latter fit (I think), I am puzzled with regard to
> the former. Does anyone know what the former is doing to arima, and why it
> works as it does?
>
> >Thanks!
>
> --
>
> >Tom
>
>
>
> Richard Saba
>
> Department of Economics
>
> Auburn University
>
> Auburn, AL 36849  USA
>
> sabaric@auburn.edu
>
>
>
>
>



-- 
Tom

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