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Thread: Time series question

  1. #1
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    Time series question

    Suppose I have two series:

    $\displaystyle x_t=0.3x_{t-1}+w_t$

    $\displaystyle y_t=x_t+0.5w_t$

    where $\displaystyle w_t\sim WN(0,1)$.

    I try to find the autocovariance function of $\displaystyle y_t$ as followed:

    $\displaystyle \gamma(h)=Cov(y_{t-h},y_t)=Cov(x_{t-h}+0.5w_{t-h},x_t+0.5w_t)$

    $\displaystyle =Cov(x_{t-h},x_t)+0.5Cov(w_{t-h},x_t)+0.5Cov(w_t,x_{t-h})+0.5^2Cov(w_{t-h},w_t)$

    Then $\displaystyle \gamma(0)=1/(1-0.3^2)+0.5^2$

    $\displaystyle \gamma(1)=0.3/(1-0.3^2)$

    $\displaystyle \gamma(2)=0.3^2/(1-0.3^2)$ and so on..

    My question is: am I right to assume both $\displaystyle 0.5Cov(w_{t-h},x_t)$ and $\displaystyle 0.5Cov(w_t,x_{t-h})$ are 0 at any lag h?

    By the way, is the series $\displaystyle y_t$ weakly stationary such that $\displaystyle \gamma(h)$ is independent of t?
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  2. #2
    MHF Contributor
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    Re: Time series question

    My question is: am I right to assume both and are 0 at any lag h?
    try evaluating both of the covariances at lag 1 and you will almost certainly find that one of them is 0 and one of them isn't. Try to understand why.

    Spoiler:

    : x_{t-h} is not correlated to future values of the white noise, because by definition future white noise is independent of the current x value.

    : : x is correlated to past values of white noise, because it is correlated to its own history. **Unless there is a tremendous fluke of algebra, i haven't actually worked it out for your particular series.


    Looking at that series i expect it is stationary but i dont know how to prove it without doing the whole question for you. Have a go if you like and post if you get stuck.
    Last edited by SpringFan25; Nov 19th 2011 at 03:11 PM.
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  3. #3
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    Re: Time series question

    Ok it seems that

    $\displaystyle \gamma(0)=1/(1-0.3^2)+0.5^2+1$

    $\displaystyle \gamma(1)=0.3/(1-0.3^2)+0.5(0.3)$

    $\displaystyle \gamma(2)=0.3^2/(1-0.3^2)+0.5(0.3)(0.3)$

    ...

    It seems to me that $\displaystyle E[y_t]$ and $\displaystyle \gamma(h)$ are not governed by t..
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