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2. Consider the following stochastic process yt = 0.4 + 0.3 yt-1 + et where et is white noise with variance equal to 1. Find

2. Consider the following stochastic process yt = 0.4 + 0.3 yt-1 + et where et is white noise with variance equal to 1. Find Ely], Elytlyt-1], Var(yt), Corr(yt , yt+1), and Corr(yt , yt+2). Document all your calculations. [25 marks]

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