ARMA models

1. ARMA models

An ARMA model is a combination of an AR and MA model.

2. ARMA Model

Here is the formula for an ARMA(1,1) model, which has the familiar AR(1) and MA(1) components.

3. Converting Between ARMA, AR, and MA Models

ARMA models can be converted to pure AR or pure MA models. Here is an example of converting an AR(1) model into and MA(infinity) model. The first line is an AR(1) model. Then, in the second line, the AR(1) equation is substituted for R t-1. You do the same for R t-2 in the third line, etc., and you eventually end up with an MA(infinity) model with coefficients phi, phi squared, phi cubed, etc.

4. Let's practice!

Now it's your turn.

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