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CT6 Sept/Oct 2011 Q8 (iv) Time series

B

Balvinder Singh

Member
Can someone please explain how does the maths work in the solution of part (iv) of Q8.

Thanks

Balvin
 
You're more likely to get a reply if you include a screen shot of the question and solution (as well as including the topic area covered in the title)- as otherwise students have no idea what the question is about and then have to look it up before they can answer.

We have:

\((1-0.4B)Y_t = (0.1+0.9e_{t-1}+e_t)\)

So we multiply both sides by the inverse of \((1-0.4B)\):

\(Y_t = (1-0.4B)^{-1}(0.1+0.9e_{t-1}+e_t)\)

We can then use a series expansion on the \((1-0.4B)^{-1}\) part using the formula given on page 2 of the Tables.
 
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