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Macro-Econometrics

Homework Assignment #5 (100 points)

(1)  Consider the following difference equation:

a.  Find the solution for y_t.  You may find it useful to iterate forward from y₀, and you can assume that y₀ is known.  Is y_t stationary?  Why or why not?

b.  Find the s-step-ahead forecast – E_t y_t+s – and explain what it means for the stability of y_t.

c.  Finally, describe what specific steps you would take to transform y_t into a stationary variable.

(2)-(4)  Repeat the above steps for each of the following difference equations: