What is the difference in the equation for AR(2) and first differencing? and also Dickey fuller test? I want to know how the equation is different from each other.
AR(2) comes after AR(1) and uses t-2 to explain t
Dicky fuller is used to test for covariance stationary
I understand that first differencing is used to correct for covariance stationary but could you explain the difference between the appearance of the equation for AR(2) vs first differencing?
They look very similar because first differencing subtracts y(t-1) on both sides of the equation
Original equation
yt= bo+b1y(t-1）
Dickey fuller becomes - subtract both sides by y(t-1)
y(t)- y(t-1) = bo+(b1-1)y(t-1)
Isn't first differencing the same as dickey fuller then?
