AR(2) process.

(a) For the one-way error component model with remainder disturbances \(u_{i t}\) following a stationary \(\operatorname{AR}(2)\) process as in (5.16), verify that \(\Omega^{*}=E\left(u^{*} u^{* \prime}ight)\) is that given by (5.18).

(b) Show that \(y^{* *}=\sigma_{\epsilon} \Omega^{*-1 / 2} y^{*}\) has a typical element given by (5.19).

Transcribed Image Text:

Vit = P1Vi,t-1 + P2Vi,t-2 + Eit (5.16)