Question: Question: Consider the reduced-form bivariate VAR + eit e2t A = 0.5 0 -0.2 0.7 and eit e2t ~iEd. N ( [:] . [ 1

Question:

Consider the reduced-form bivariate VAR + eit e2t A = 0.5 0 -0.2 0.7 and eit e2t ~iEd. N ( [:] . [ 1 3]) (i) What is the condition for stationarity of the process (yit, yat)? Show whether or not the condition for stationarity is satisfied? (ii) Assuming that the structural shock to yat (that is E2t) has no contemporaneous effect on yit, find the B matrix (iii) What is the response of yet+2 to a one-unit shock in the pure innovations of yit

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