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Lecture 2 SVARs with Integrated Processes

Lecture 2 SVARs with Integrated Processes. Adrian Pagan University of Sydney. Where’s the Trend?. Now we see it . So what does it do if there is no Trend?. Useful to look at pure random walk y t =y t-1 + e t

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Lecture 2 SVARs with Integrated Processes

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  1. Lecture 2 SVARs with Integrated Processes Adrian Pagan University of Sydney

  2. Where’s the Trend?

  3. Now we see it

  4. So what does it do if there is no Trend? • Useful to look at pure random walk yt =yt-1 + et • yt can be thought of sum of a permanent (ytp) and transitory (ytT) component • For random walk yt= ytp and no transitory component • Apply HP to yt • What does it produce?

  5. It creates a Transitory Component where there wasn’t one

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