Introductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge

Exercise 8

Let {yt: t _ 1, 2, …} follow a random walk, as in (11.20), with y0 = 0. Show that Corr(yt, yt+h) =

Step 1 of 3

When follows the random walk, for all

It is assumed that is independent and identically distributed with and

This also implies:

a)

b) , for all

c)

It is also assumed that the initial value is independent of for all. The equation can also be written as.

Assume, thus,