Question: 1. Given tha sample data, explain how you can test if the AR?2?model of Eq. 2 has a unit root or not. Clearly describe the

1. Given tha sample data, explain how you can test if the AR?2?model of Eq. 2 has a unit root or not. Clearly describe the procedure, the variables used, and the test statistic and its hypothese.2. What test result would you expect? Does your expectation change, if you only had a sample of size T =30.3. Assume that you have fitted an AR?1?model to the data generated by Eq.1. The estimated model is ?3?Yt heat =0.19+0.92Yt-1Discuss whyyou might prefer the estimated model of Eq.3 over estimates of an AR?2 ?model if you wanted to use the estimated model fro forecasting. How does your answer change, if you know that your data has been generated by Eq.2?

Part C Assume that you have a sample of size N=1,000 generated from the AR(2) model (2) yt = 0.2 + 0.9 yt-1 + 0.01 yt-2 + Et where & ~iid(0, 62)

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