Question: Given the AR (2) process y, = 1+1.3y-1-0.4y-2+u, te Z, with u,~ N(0, 1), suppose that y = 5.0, and y-1 = 3. (i)

Given the AR (2) process y, = 1+1.3y-1-0.4y-2+u, te Z, with u,~

Given the AR (2) process y, = 1+1.3y-1-0.4y-2+u, te Z, with u,~ N(0, 1), suppose that y = 5.0, and y-1 = 3. (i) Forecast y+1 +2 and y+3. (ii) Determine the forecast error variances (1), (2) and (3). (iii) Compute 95% confidence interval forecasts for y+1, +2 and Y+3. (6 marks) (3 marks) (6 marks)

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