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The motion compensated temporal filtering (MCTF) technique, which is extensively used in 3-D wavelet video coding schemes nowadays, leads to signal coupling among various spatial subbands because motion alignment is introduced in the temporal filtering. Using all spatial subbands as a reference enables MCTF to fully take advantage of temporal correlation across frames but inevitably brings drifting problem in supporting spatial scalability. This paper first analyzes the signal coupling phenomenon and then proposes a quantitative model to describe signal propagation across spatial subbands during the MCTF process. The signal propagation is modeled for a single MC step based on the shifting effect of wavelet synthesis filters and then it is extended to multilevel MCTF. This model is called subband coupling aware signal propagation (SCASP) model in this paper. Based on the model, we further propose a subband coupling aware rate allocation scheme as one possible solution to the above dilemma in supporting spatial scalability. To find the optimal rate allocation among all subbands for a specified reconstruction resolution, the SCASP model is used to approximate the reconstruction process and derive the synthesis gain of each subband with regard to that reconstruction. Experimental results have fully demonstrated the advantages of our proposed rate allocation scheme in improving both objective and subjective qualities of reconstructed low-resolution video, especially at middle bit rates and high bit rates.