The following questions will refer to the simple auto-regressive time series model presented below: Yt= +...

 

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The following questions will refer to the simple auto-regressive time series model presented below: Yt= μ+ pyt-1 + U₁ a) If the auto-regressive coefficient is equal to 0.7, what do we know about the dependence between y, and yt-1 b) If the auto-regressive coefficient is >0 and <1 and there is a positive shock to y in time 1-2: show how this series is expected to behave using a diagram. Discuss. You can assume that there is no shock following the initial shock in period t-2. c) Assuming the auto-regressive coefficient is >1, is there a long run equilibrium? Explain. The following questions will refer to the simple auto-regressive time series model presented below: Yt= μ+ pyt-1 + U₁ a) If the auto-regressive coefficient is equal to 0.7, what do we know about the dependence between y, and yt-1 b) If the auto-regressive coefficient is >0 and <1 and there is a positive shock to y in time 1-2: show how this series is expected to behave using a diagram. Discuss. You can assume that there is no shock following the initial shock in period t-2. c) Assuming the auto-regressive coefficient is >1, is there a long run equilibrium? Explain.

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