Question

Econometrics Question

(a) What properties must a time series {y_t} have to satisfy in order for it to be a covariance stationary process?

Let {u_t} be a sequence of i.i.d. N(0,1) variables.

Let y_t= α+βt+u_t, and y_t = y_t -y_t-1.

(b) Is {y_t} covariance stationary? Justify your answer.
(c) Would your answer to part (b) change if {u_t} were a moving average of order 1?
(d) Is {y_t} covariance stationary? Justify your answer.

 = change in, won't allow a triangle/delta.

Answer 1

Solution -

Ans part (a) - A time series {Xt} is need to satisfies the following properties for covariance stationary :