The general solution to an autoregressive law of motion

Author:

Brendan K. Beare, Massimo Franchi, Phil Howlett

Keyword:

Economics, Econometrics, Econometrics (econ.EM)

journal:

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date:

2024-02-03 00:00:00

Abstract

In this article we provide a complete description of the set of all solutions to an autoregressive law of motion in a finite-dimensional complex vector space. Every solution is shown to be the sum of three parts, each corresponding to a directed flow of time. One part flows forward from the arbitrarily distant past; one flows backward from the arbitrarily distant future; and one flows outward from time zero. The three parts are obtained by applying three complementary spectral projections to the solution, these corresponding to a separation of the eigenvalues of the autoregressive operator according to whether they are inside, outside or on the unit circle. We provide a finite-dimensional parametrization of the set of all solutions.