Clarification on howework problem 11

[jstac]

From @clizama : "In the lecture notes, the shock \xi_{t+1} is not part of the information set at time t. However, In the paper \xi_t seems to be in the information set since it has a subscript t on it. This makes a big difference in the state space, since if \xi is unknown at t then the state space is just y_t, but if it is known at t then the state space should be (y_t, \xi_t). Which one is the one for the homework?"

It's a good question: The answer is that the notation misleading: the shock is not in the time t information set and the state is just y_t.

[jstac]

Another point: The distribution of the log of the shock is meant to be N(m, s^2) where m = -0.1 and s = 0.2. That is, s is the standard deviation of the log of the shock.