Consider the following two-variable VAR model with one lag and no intercept: a. Show that the iterated
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Consider the following two-variable VAR model with one lag and no intercept:
a. Show that the iterated two-period-ahead forecast for Y can be written as Y t/1-2 = ? 1 Y 1-2 + ? 2 X t-2 and derive values for ? 1 and ? 2 in terms of the coefficients in the VAR.
b. In light of your answer to (a), do iterated multiperiod forecasts differ from direct multiperiod forecasts? Explain.
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