1. Arch-Garch PPIFGS

2. Producer Price Index Finished Goods 1982=100

3. Transform to the monthly inflation rate

4. Noisy episodic inflation rate

5. Kurtotic monthly inflation rate

6. How to Model? Try arma(1,1)

7. Stationary monthly inflation rate?

9. Correlogram of residuals

10. Correlogram of residuals squared

11. Residuals squared trace

12. Modeling the variance

14. Is model satisfactory?

15. Corrrelogram of square of standardized residuals

16. Ordinary residual: e(t) Equation Window: Procs, make residual

18. e(t) =wn(t)*h(t) 1/2 ordinary residual = standardized residual*conditional standard deviation

19. Residuals: ordinary & Standard

20. h(t) 1/2 : conditional standard deviation

21. Equation window: Procs Make Garch Variance Series

22. e(t) =wn(t)*h(t) 1/2

23. Residstd & stdresid

24. Estimated Conditional Variance h(t) = α 0 + α 1 [e(t-1)] 2 + β 1 h(t-1) h(t) = 1.56X10 -6 + 0.219 [e(t-1)] 2 + 0.734 h(t-1)