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recursive model


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Let Xt and Yt denote two random variables measured at time t, with observed values xt and yt. A simple example of a recursive model is provided by

E(Yt)=a+bxt,   E(Xt)=c+dyt−1,

where E denotes expected value. The present value of Y depends upon the present value of X, but that value depends upon the previous value of Y.

Subjects: Probability and Statistics — Economics.


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