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QAF week4, image, image, image, image, image, image, image, image, image,…

- - - - |φ(1)| <1: stationary. mean variance and covariance constant
      - |φ(1)| >1: explosive. mean variance and covariance not constant
      - |φ(1)| =1: random walk/unit root process. mean constant, variance and covariance not constant.
        
        backward iteration: y(t)=sum of y(0) and all error terms from 1 to t.
        
        itself is not stationary, but its first difference is.so this is called difference-stationary and they are integrated of order one I(1).
        
        conditional expected value of y(t) driven by stochastic shocks ε(t).
        
        cumulative sum of all these shocks called stochastic trend