Some effects of rounding errors on arma(1,1) models

Abstract

Much of the data used for the construction of time series models has been subjected to a rounding procedure prior to its use for modelling. In this work, the error induced by the rounding procedure is modelled as additive and uniformlydistributed, and its effect on ARMA(1,1) models is investigated. The impact on the three model parameters (autoregressive, moving average, and location) is developed; the primary effect is on the moving average term. The effect of roundingerrors on the small-sample properties of the estimators for ARMA(1,1) models is studied using Monte Carlo simulation techniques

Keywords:

• Monte Carlo simulation
• small-sample properties
• time series
• uniform additive errors