Consider the simple random walk (et is a stationary white noise process) yt = yt−1 + et Using back substitution (start with y1 = y0 + e1), rewrite the previous equation so that yt is a function of y0 and of the error term.
Consider the random walk with drift (et is a stationary white noise process) yt = β0 + yt−1 + et Using back substitution (start with y1 = β0 + y0 + e1), rewrite the previous equation so that yt is a function of y0, a time trend and of the error term.
Get Answers For Free
Most questions answered within 1 hours.