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3. Consider a VAR with two variables: y,t and y2,t. In particular, assume Y1,t - ( 1 ) ; = ( 1 ) ;
3. Consider a VAR with two variables: y,t and y2,t. In particular, assume Y1,t - ( 1 ) ; = ( 1 ) ; & = ( 2 ); Et 1,t 2,t Y2,t and Yt = = $1,11 1,12 $1,22 (9. 0 / where is white noise and the us and os are parameters. Assume that the VAR is stable and that the system begins in steady state. Then, in period 0, y2 is pushed out of steady state given a non-orthogonalized one-time one-unit shock to 2. Amid this backdrop, what is the period-2 non-orthogonalized impulse response function for y equal to (in response to the shock to 2)? Please show your work and explain your reasoning with careful detail. Also, the impulse response function should be stated explicitly in terms of parameters, only.
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