Hey guys,
Given the AR(2) process $\displaystyle y_t=1+1.3_{y-1}-.4_{y-2}+e$ where e is iid,
is the process stationary? That is, are all unit roots <1?
Hello,
The characteristic polynomial is just $\displaystyle \phi(x)=1+1.3x-.4x^2$
Find its roots.
For the process to be stationary, you need the roots to be such that their modulus (or absolute value if they're real) to be different from 1.
The condition for it to be < 1 is to prove that the process is in canonical form, which is not the same.