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A lot of economic variable responses to unexpected shocks display hump shapes. The simplest model to explain such behavior is an A R ( 2
A lot of economic variable responses to unexpected shocks display hump shapes. The simplest model to explain such behavior is an process:
where is white noise, iid from
a What is the impulseresponse function of to a shock in dots Plot the impulse response for periods.
b What is the limiting response to a shock when approaches What can you say about correlation between and when approaches
c For a general process:
What are the restrictions on and such that is stationary?
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