16.8 Consider the following two-variable VAR model with one lag and no intercept:

Yt = b11Yt - 1 + g11Xt - 1 + u1t Xt = b21Yt - 1 + g21Xt - 1 + u2t.

a. Show that the iterated two-period-ahead forecast for Y can be written as Ytt - 2 = d1Yt - 2 + d2Xt - 2 and derive values for d1 and d2 in terms of the coefficients in the VAR.

b. In light of your answer to (a), do iterated multiperiod forecasts differ from direct multiperiod forecasts? Explain.