Question #58
Reading: Reading 2 Time-Series Analysis
PDF File: Reading 2 Time-Series Analysis.pdf
Page: 28
Status: Unattempted
Question
Suppose you estimate the following model of residuals from an autoregressive model: εt 2 = 0.4 + 0.80εt-1 2 + µt, where ε = ε^ If the residual at time t is 2.0, the forecasted variance for time t+1 is:
Answer Choices:
A. 2.0
B. 3.6
C. 3.2
Explanation
The variance at t=t+1 is 0.4 + [0.80 (4.0)] = 0.4 + 3.2. = 3.6.