ProblemSet6

ProblemSet6 - ECON 3200 Introduction to Econometrics...

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ECON 3200 Introduction to Econometrics Problem set 6 (due date: April 9, 2009) Problem 1 (Wooldridge 11.4) Let f y t : t = 1 ; 2 ; : : : g follow a random walk, with y 0 = 0 . Show that Corr ( y t ; y t + h ) = p t= ( t + h ) for t 1 , h > 0 . Problem 2. (Wooldridge 11.6) Let hy 6 t denote the three-month holding yield (in percent) from buying a six-month T-bill at time ( t ± 1) and selling it at time t (3 months hence) as a three=month T-bill. Let hy 3 t 1 be the three- month holding yield from buying a three-month T-bill at time ( t ± 1) . At time ( t ± 1) , hy 3 t 1 is known whereas hy 6 t is unknown because p 3 t , the price of three-month T-bills, is unknown at time ( t ± 1) . The expectations hypothesis (EH) says that these two di/erent three-month investments should be the same, on average. Mathematically, we can write this as a conditional expectation: E [ hy 6 t j I t 1 ] = hy 3 t 1 where I t 1 denots all observable information up through time t ± 1 . This suggests estimating the model hy 6 t = & 0 + 1 hy 3 t 1 + u t and testing
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This note was uploaded on 10/03/2009 for the course ECON 3200 taught by Professor Neilsen during the Spring '08 term at Cornell.

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ProblemSet6 - ECON 3200 Introduction to Econometrics...

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