Consider the following AR(2) processesand:

= 1.5₁ 0.5₂+

= 0.7₁ 0.1₂+

whereandare independent white noise error terms with mean 0 and variances²and²respectively.

1. Write the characteristic equations forandand use them to show whether these processes are stationary or non-stationary.
2. Based on your answer to (1), how would you proceed if you wanted to run a regression involving bothand? How would you interpret this regression?