Question #61
Reading: Reading 2 Time-Series Analysis
PDF File: Reading 2 Time-Series Analysis.pdf
Page: 29
Status: Unattempted
Question
Given an AR(1) process represented by xt+1 = b0 + b1×xt + et, the process would not be a random walk if:
Answer Choices:
A. the long run mean is b0 / (1-b1)
B. E(et)=0
C. b1 = 1
Explanation
For a random walk, the long-run mean is undefined. The slope coefficient is one, b1=1, and
that is what makes the long-run mean undefined: mean = b0/(1-b1).