nonstationary (unit root X=1) (Yt)(Yt-1) =0.6[(Yt-1) (Yt-2)]+ et (YtYt-1) =0.6(Yt-1 Yt-2) + et First differences form stationary AR(1) process! No mean no mean reversion no gravity – – pulling toward the mean. Yt = 1.60(Yt-1) 0.63(Yt-1)+ et  X21.60X+0.63=0 X=0.9 or X=0.7 |roots|<1 stationary (Yt)(Yt-1) = 0.03(Yt-1) + 0.63[(Yt-1) (Yt-2)]+ et YtYt-1 = + 0.63(Yt-1Yt-2)+ 0.03(Yt-1) et *
nonstationary (unit root X=1) (Yt)(Yt-1) =0.6[(Yt-1) (Yt-2)]+ et (YtYt-1) =0.6(Yt-1 Yt-2) + et First differences form stationary AR(1) process! No mean – no mean reversion – no gravity pulling toward the mean. Yt = 1.60(Yt-1)  0.63(Yt-1)+ et X21.60X+0.63=0 X=0.9 or X=0.7 |roots|<1 stationary (Yt)(Yt-1) = 0.03(Yt-1) + 0.63[(Yt-1) (Yt-2)]+ et YtYt-1 = 0.03(Yt-1) + 0.63(Yt-1Yt-2)+ et *