Suppose you are estimating a three-variable VAR(1) model. For each estimated coefficient matrix given below, determine whether the model is stable. Also, assuming starting value of Y0 = X0 = Z0 = 1, use your favorite software to calculate the next ten values of X, Y, and Z. Graph these to verify whether the estimated model is stable.

(a) βˆ =

⎡

⎣

−0.2 0.4 0.35 0.3 −0.2 0.15 0.2 −0.3 0.4

⎤

⎦

(b) βˆ =

⎡

⎣

−0.1 0.3 0.4 0.9 −0.2 0.1 0.2 0.3 0.8

⎤

⎦