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Consider the ARCH(1) process: X = 11+ 00 + ( 1-1-11) where e are independent normal random variables with variance 1 and mean 0.

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Consider the ARCH(1) process: X = 11+ 00 + ( 1-1-11) where e are independent normal random variables with variance 1 and mean 0. Show that, for s = 1,2,..., t-1, X, and Xt-s are: (i) uncorrelated. (ii) not independent. [5] [3] [Total 8]

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