ECO327Y5 Study Guide - Midterm Guide: Stata, Unit Root, Time Complexity
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= var(xt) does not depend on t, so sd(xt+h) = for any h 0. (1/2) (1/4) = 3/4; the third to last equality follows because the et are pairwise uncorrelated and e( ) = 1 for all t. using problem 11. 1 and the variance calculation from part (i), Computing cov(xt,xt+2) is even easier because only one of the nine terms has expectation different from zero: (1/2)e( 11. 6 (i) the t statistic for h0: 1 = 1 is t = (1. 104 1)/. 039 asymptotic results, we might as well use df = 120 in table g. 2. So the 1% critical value against a two-sided alternative is about 2. 62, and so we reject h0: 1 = 1 against h1: 1 1 at the 1% level. It is hard to know whether the estimate is practically different from one without. Although we must rely on comparing investment strategies based on the theory ( 1 = 1) and the estimate (
