One thing that is really confusing me is in the text it states that:
“… the FX rate is a random walk, as we now suspect. If so, the first differenced series will be covariance stationary.”
Elsewhere is also says that:
“… modelling the first-differenced time series with an AR(1) model does not help us predict the future, as b0=0 and b1=1.”
Does this mean that if you first difference a series and b0=0 and b1=0 then the original time series is a random walk, but if b0=0 and b1 is not equal to 0 it isn’t? AAAGH!