Explanation:
In an MA(q) process, all autocorrelations beyond displacement abruptly fall to zero. Autocorrelations in AR processes gradually decline toward zero. MA processes are made up of unobservable shocks, , which are white noise with zero mean and constant, not dynamic, variance.
(Book 2, Module 21.2, LO 21.d)
Question 36
Which of the following is correct in relation to first-order moving average MA(1) and autoregressive AR(1) processes?
A
Autocorrelations gradually decline toward zero in an MA(1) process.
B
Autocorrelations are zero beyond the first displacement in an AR(1) process.
C
An AR(1) process is convergent if and only if the coefficient .
D
MA(1) processes have zero mean and dynamic variance.
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