3a. Suppose that the true DGP of the data is a stationary AR(1) and fully known...

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3a. Suppose that the true DGP of the data is a stationary AR(1) and fully known to you (you know it is an AR(1) and know the true value of the parameters). Show that the 2-step ahead forecast errors behaves as an MA(1). Show that the h-step ahead forecasts behaves as an MA(h-1). b. Suppose that the true DGP of the data is an MA(1) and fully known to you. Show that the h-step ahead forecasts behaves as an MA(1). Remark: the general principle is that h-step ahead optimal forecast errors will have a dynamic structure of "up to" an MA(h). 3a. Suppose that the true DGP of the data is a stationary AR(1) and fully known to you (you know it is an AR(1) and know the true value of the parameters). Show that the 2-step ahead forecast errors behaves as an MA(1). Show that the h-step ahead forecasts behaves as an MA(h-1). b. Suppose that the true DGP of the data is an MA(1) and fully known to you. Show that the h-step ahead forecasts behaves as an MA(1). Remark: the general principle is that h-step ahead optimal forecast errors will have a dynamic structure of "up to" an MA(h).

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3a Suppose that the true DGP of the data is a stationary AR1 and fully known to you you know it is an AR1 and know the true value of the parameters Sh... View the full answer