1. (a) Describe the steps that Box and Jenkins (1976) suggested should be involved in constructin

1. (a) Describe the steps that Box and Jenkins (1976) suggested should be involved in constructing an ARMA model.

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(b) What particular aspect of this methodology has been the subject of criticism and why?

(c) Describe an alternative procedure that could be used for this aspect.

2. You obtain the following estimates for an AR(2) model of some returns data

where ut is a white noise error process. By examining the characteristic equation, check the estimated model for stationarity.