L does not equal 1. L is the lag operator with specific properties. Example: c:constant, L*c=c Yt: time series , L*Yt=Yt-1 etc (see any time series textbook for these) Regarding your question since c(2) is a constant we write c(2)*L=c(2). This applies to polynomials as well. If A(L)=1-a1*L-a2*L^2 then A(L)*c=.=A(1)*c Now if in the denominator c/(1-a*L)=c/(1-a). Further, if |a|<1 then c/(1-a)=c*sum(a^j) for j=0 to infinity (series property). Thus c/(1-a)= c*sum(a^j)=c*sum((aL)^j)=c*sum(a^j*L^j) ***************************************************************** Dr Ioannis A. Venetis Assistant Professor University of Patras, Department of Economic Sciences University Campus, Rio, 26504, Greece Tel: +30 2610 969 964 Ιωάννης Α. Βενέτης Επίκουρος Καθηγητής Τμήμα Οικονομικών Επιστημών, Πανεπιστήμιο Πατρών Πανεπιστημιούπολη, Ρίο 26504 Τηλ: 2610 969 964 *****************************************************************