ProblemSet7

ProblemSet7 - nomic activity Problem 3(Wooldridge 18.7 Let...

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ECON 3200 Introduction to Econometrics Problem set 7 (due date: April 17, 2009) Problem 1 (Wooldridge 18.3) Suppose that f y t g and f z t g are I (1) series but y t t is I (0) for some 6 = 0 . Show that for any ± 6 = , y t ±z t must be I (1) . Problem 2. (Wooldridge 18.6) Using the monthly data in volat.xls the follow- ing model was estimated: d pcip = 1 : 54 (0 : 56) + 0 : 344 (0 : 042) pcip 1 + 0 : 074 (0 : 045) pcip 2 +0 : 073 (0 : 042) pcip 3 + 0 : 031 (0 : 013) pcsp 1 ; n = 554 ; R 2 = 0 : 174 ; R 2 = 0 : 168 ; where pcip is the percentage change in monthly industrial production, at an annualized rate, and pcsp is the percentage change in the Stan- 1. If the past three months of pcip are zero and pcsp 1 = 0 , what is the predicted growth in industrial production for this month? Is is statistically di/erent from zero? 2. If the past three months of pcip are zero but pcsp 1 = 10 , what is the predicted growth in industrial production? 3. What do you conclude about the e/ects of the stock market on real eco-
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Unformatted text preview: nomic activity? Problem 3 (Wooldridge 18.7) Let gM t be the annual growth in the money sup-ply and let unemp t be the unemployment rate. Assuming that unemp t fol-lows a stable AR(1) process, explain in detail how you would test whether gM Granger causes unemp: Problem 4. (Wooldridge C18.2) Use the data in hseinv.xls for this exercise. 1. Test for a unit root in log ( invpc ) , including a linear time trend and two lags of & log ( invpc t ) . Use a 5% signi²cance level. 2. Use the approach from part 1 to test for a unit root in log ( price ) : 3. Given the outcomes in parts 1 and 2, does it make sense to test for coin-tegration between log ( invpc ) and log ( price ) ?...
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