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Polynomials and Difference Equations:: Appendix
Polynomials and Difference Equations:: Appendix
Polynomials and Difference Equations:: Appendix
Polynomials and
Difference Equations
where x(t) is an observable sequence indexed by the time subscript t and ε(t) is
an unobservable sequence of independently and identically distributed random
variables.
A more general model, which we shall call the general temporal regres-
sion model, is one which postulates a relationship comprising any number of
consecutive elements of x(t), y(t) and ε(t). Thus we have
X
p X
k X
q
(2) αi y(t − i) = βi x(t − i) + µi ε(t − i)
i=0 i=0 i=0
Any of the sums in this expression can be infinite, but if the model is to be
viable, the sequences of coefficients {αi }, {βi } and {µi } can depend on only a
limited number of parameters.
We are particularly interested in a number of specialisations of the model.
The model represented by the equation
X
q
(3) y(t) = βx(t − i) + µi ε(t − i)
i=0
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D.S.G. POLLOCK : ECONOMETRIC THEORY
X
q
(6) y(t) = µi ε(t − i),
i=0
X
p
(7) αi y(t − i) = ε(t),
i=0
X
p X
q
(8) αi y(t − i) = µi ε(t − i)
i=0 i=0
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D.S.G. POLLOCK : POLYNOMIALS
The advantage which comes from defining polynomials in the lag operator
stems from the fact that they are isomorphic to the set of ordinary algebraic
polynomials. Thus we can rely upon what we know about ordinary polynomials
to treat problems concerning lag-operator polynomials.
Algebraic Polynomials
Consider the equation α0 + α1 z + α2 z 2 = 0. On dividing the equation by
α2 , we can factorise it as (z − λ1 )(z − λ2 ) where λ1 , λ2 are the roots of the
equation that are given by the formula
p
−α1 ± α12 − 4α2 α0
(13) λ= .
2α2
If α12 ≥ 4α2 α0 , then the roots λ1 , λ2 are real. If α12 = 4α2 α0 , then λ1 = λ2 .
If α12 ≤ 4α2 α0 , then the√roots are the conjugate complex numbers λ = α + iβ,
λ∗ = α − iβ where i = −1.
Complex Roots
There are three alternative ways of representing the conjugate complex
numbers λ and λ∗ :
where
µ ¶
√ β
(15) ρ= (α2 + β 2 ) and θ = tan−1 .
α
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D.S.G. POLLOCK : ECONOMETRIC THEORY
These are called, respectively, the Cartesian form, the trigonometrical form and
the exponential form.
The polar representation is understood by considering the Argand diagram:
Im
β λ
θ
Re
θ
α
ρ
λ*
θ2 θ4 θ6
cos θ = 1 − + − + ···
(16) 2! 4! 6!
iθ3 iθ5 iθ7
i sin θ = iθ − + − + ···
3! 5! 7!
θ2 iθ3 θ4
cos θ + i sin θ = 1 + iθ − − + + ···
(17) 2! 3! 4!
= eiθ .
eiθ + e−iθ
(19) cos θ =
2
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D.S.G. POLLOCK : POLYNOMIALS
and
−i(eiθ − e−iθ )
sin θ =
(20) 2
eiθ − e−iθ
= .
2i
(21) α0 + α1 z + α2 z 2 + · · · + αn z n = 0.
(22) (z − λ1 )(z − λ2 ) · · · (z − λn ) = 0,
where some of the roots may be real and others may be complex. The complex
roots come in conjugate pairs, so that, if λ = α + iβ is a complex root, then
there is a corresponding root λ∗ = α−iβ such that the product (z−λ)(z−λ∗ ) =
z 2 + 2αz + (α2 + β 2 ) is real and quadratic. When we multiply the n factors
together, we obtain the expansion
X XX
(23) 0 = zn − λi z n−1 + λi λj z n−2 − · · · (−1)n λ1 λ2 · · · λn .
i i j
We can compare this with the expression (α0 /αn )+(α1 /αn )z +· · ·+z n = 0.QBy
equating coefficients of the two expressions, we find that (α0 /αn ) = (−1)n λi
or, equivalently,
Y
n
(24) αn = α0 (−λi )−1 .
i=1
5
D.S.G. POLLOCK : ECONOMETRIC THEORY
P P P P
αi µn−i = µn αi µ−i = 0 implies that αi µ−i = αi λi = 0. Confusion
can arise from not knowing which of the two equations one is dealing with.
where δ1 (z)/γ1 (z) and δ2 (z)/γ2 (z) are proper rational fractions.
Q
Imagine that γ(z) = (1 − z/λi ). Then repeated applications of this basic
result enables us to write
κ1 κ2 κn
(27) δ(z) = + + ··· + .
1 − z/λ1 1 − z/λ2 1 − z/λn
By adding the terms on the RHS, we find an expression with a numerator of
order n − 1. By equating the terms of the numerator with the terms of δ(z),
we can find the values κ1 , κ2 , . . . , κn .
Consider, for example,
3x 3x
=
1 + x − 2x2 (1 − x)(1 + 2x)
κ2 κ2
(28) = +
1 − x 1 + 2x
κ1 (1 + 2x) + κ2 (1 − x)
= .
(1 − x)(1 + 2x)
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D.S.G. POLLOCK : POLYNOMIALS
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D.S.G. POLLOCK : ECONOMETRIC THEORY
where c1 , c2 , . . . , cn are the constants which are determined by the initial con-
ditions.
In the case where two roots coincide at a value of λ, the equation α(L)y(t)
= 0 has the solutions y1 (t) = (1/λ)t and y2 (t) = t(1/λ)t . To show Q this, let
us extract the term (1 − L/λ)2 from the factorisation α(L) = α0 i (1 − L/λj )
given under (25). Then, according to the previous argument, we have (1 −
L/λ)2 (1/λ)t = 0, but, also, we have
µ ¶2 µ ¶ t µ ¶ µ ¶t
L 1 2L L2 1
1− t = 1− + 2 t
λ λ λ λ λ
(35) µ ¶ µ ¶t µ ¶t
1 1 1
=t t − 2(t − 1) + (t − 2) = 0.
λ λ λ
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D.S.G. POLLOCK : POLYNOMIALS
These will appear in a general solution of the difference equation of the form of
This is a real-valued sequence; and, since a real term must equal its own con-
jugate, we require c and c∗ to be conjugate numbers of the form
Thus we have
To analyse the final expression, consider first the factor cos(ωt − θ). This
is a displaced cosine wave. The value ω, which is a number of radians per unit
period, is called the angular velocity or the angular frequency of the wave. The
value f = ω/2π is its frequency in cycles per unit period. The duration of one
cycle, also called the period, is r = 2π/ω.
The term θ is called the phase displacement of the cosine wave, and it
serves to shift the cosine function along the axis of t so that the peak occurs at
the value of t = θ/ω instead of at t = 0.
√
Next consider the term κt wherein κ = (γ 2 + δ 2 ) is the modulus of the
complex roots. When κ has a value of less than unity, it becomes a damping
factor which serves to attenuate the cosine wave as t increases.
Finally, the factor 2ρ represents the initial amplitude of the cosine wave
which is the value that it assumes when t = 0. Since ρ is just the modulus of
the values c and c∗ , this amplitude reflects the initial conditions.