16.3 Suppose that ut follows the ARCH process, s2t = 1.0 + 0.5 u2t - 1. a....

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16.3 Suppose that ut follows the ARCH process, s2t

= 1.0 + 0.5 u2t

- 1.

a. Let E(u2t

) = var(ut) be the unconditional variance of ut. Show that var(ut) = 2. (Hint: Use the law of iterated expectations, E1u2t 2 = E3E1u2t

• ut - 124.)

b. Suppose that the distribution of ut conditional on lagged values of ut is N(0, s2t

). If ut - 1 = 0.2, what is Pr1 -3 … ut … 32? If ut - 1 = 2.0, what is Pr1 -3 … ut … 32?

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Introduction To Econometrics

ISBN: 9781292071367

3rd Global Edition

Authors: James Stock, Mark Watson

Question Posted: Oct 26, 2024 02:00 AM

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16.3 Suppose that ut follows the ARCH process, s2t = 1.0 + 0.5 u2t - 1. a....

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Introduction To Econometrics

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