If u_t refers to the error term at time 't' and y_{t -} ₁ refers to the dependent variable at time 't - 1', for an AR(1) process to be homoskedastic, it is required that: A)Var(u_t|y_{t -} ₁) Var(y_t|y_t-₁) = ². B)Var(u_t|y_{t -} ₁) = Var(y_t|y_t-₁) ². C) Var(u_t|y_{t -} ₁)

Question

If u_t refers to the error term at time 't' and y_{t -} ₁ refers to the dependent variable at time 't - 1', for an AR(1) process to be homoskedastic, it is required that: A)Var(u_t|y_{t -} ₁) > Var(y_t|y_t-₁) = ². B)Var(u_t|y_{t -} ₁) = Var(y_t|y_t-₁) > ². C) Var(u_t|y_{t -} ₁) < Var(y_t|y_t-₁) = ². D) Var(u_t|y_{t -} ₁) = Var(y_t|y_t-₁) = ².

Quizplus · Accepted Answer

For an AR(1) process to be homoskedastic, the variance of the error term at time 't' (u_t) conditioned on the dependent variable at time 't - 1' (y_{t -} ₁) should be equal to the variance of the dependent variable at time 't' (y_t) conditioned on the same lagged variable (y_{t -} ₁). Therefore, the correct option is (D). None of the other options present this condition. If u_t refers to the error term at time 't' and y_{t -} ₁ refers to the dependent variable at time 't - 1', for an AR(1) model to be homoskedastic, it is required that Var(u_t|y_{t -} ₁) = Var(y_t|y_t-1) = 11eab06d_2558_9f2b_beed_67cb9774980a_TB2133_11 ².

If Ut Refers to the Error Term at Time 'T

If U_t Refers to the Error Term at Time 'T