Closed rachelsalisbury closed 5 years ago
There are three variables that need to be generated: e, u, and z_1. They are jointly normal. The variance-covariance matrix should be a 3 x 3 matrix. You need to know the covariances between each pair of those three variables. They are described as follows:
the covariance between $\epsilon$ and $u$ is 1/2, the covariance between $z_1$ and $\epsilon$ is 0, and let $u$, $z_1$, and $\epsilon$ be Normally distributed (jointly, let them be a multivariate Normal). Let them be mean zero with covariance between pairs to be 0, unless otherwise stated above. Let the variance of each be 1.
Hope this helps!
Figured it out, thank you!
How do you construct the variance-covariance matrix in the function that generates data?