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(a) BecauseR1tfollowsarandomwalk(R1tR1t1ut),theiperiodaheadforecastofR1tis
R1t i|t R1t i 1|t R1t i 2|t L L R1t .
Thus
1 k 1 k
Rkt
k i 1
R1t i|t et R1t et R1t et .
k i 1
(b) R1tfollowsarandomwalkandisI(1).RktisalsoI(1).GiventhatbothRktandR1tare
integratedoforderone,andRktR1tetisintegratedoforderzero,wecanconcludethat
RktandR1tarecointegrated.Thecointegratingcoefficientis1.
R1t 0.5 ut , R1t
(c) When isstationarybutR1tisnotstationary.
R1t 1.5R1t 1 0.5R1t 2 ut ,
anAR(2)processwithaunitautoregressiveroot.Thatis,
I (1) R1t
R1tis .Theiperiodaheadforecastof is
R1t i|t 0.5R1t i 1|t 0.52 R1t i 2|t L L 0.5i R1t .
TheiperiodaheadforecastofR1tis
R1t i t R1t i 1|t R1t i|t
R1t i 2|t R1t i 1|t R1t i|t
K K
R1t R1t 1|t L R1t i|t
R1t (0.5 L 0.5i ) R1t
0.5(1 0.5i )
R1t R1t .
1 0.5
Thus
1 k 1 k
Rkt
k i 1
R1t i t et [ R1t (1 0.5i )R1t ] et
k i 1
R1t R1t et .