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Homework answers / question archive / Given the following model: y = ρW1y + βX + u u = λW2u + ε ε ∼ N(0,σ2In) Write the model in its reduced form

Given the following model: y = ρW1y + βX + u u = λW2u + ε ε ∼ N(0,σ2In)

- Write the model in its reduced form.
- Are the shocks permanent? Why? Explain.
- Identify what kind of model you have in the primitive equation.
- Write the likelihood function of the model.
- Write the log-likelihood function of the model.
- Write the equations for the first order conditions.
- Write the concentrated log-likelihood function.
- Explain the algorithm to find the estimated parameters of the model.