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CP2 Paper 2 April 2022

D

Darragh Kelly

Ton up Member
Hi,

I just have a question regarding the calculation of the theortical GDP (not the expected value from the average of all 100 simulations). How is the expected value from year to year = previous index*1.03? I just can't it to the time series model formula provided...granted its been a while since I've studied CS2, so might be missing fundamentals...

Many thanks,

Darragh
 
The time series formula is
Log(GDP_index(i,t)) = log(1.03) + log(GDP index(i,t-1)) + z(i,t) + 0.45*z(i,t-1)

the theoretical expected value of z(i,t) = 0, as is 0.45*z(i,t-1), because the expected value of the uniform distribution is 0.5, and z(i,t) = 0.2*(random number(i,t)-0.5)
So the expected value of GDP_index(i,t) = GDP_index(i,t-1)*(1.03)
 
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