ProblemSet7Ans - ECON 3200 Introduction to Econometrics...

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ECON 3200 Introduction to Econometrics Answers for Problem Set 7 Problem 1 (Wooldridge 18.3) For δ β , y t z t = y t z t + ( ) z t , which is an I(0) sequence ( y t z t ) plus an I(1) sequence. Since an I(1) sequence has a growing variance, it dominates the I(0) part, and the resulting sum is an I(1) sequence. Problem 2 (Wooldridge 18.6) 1. This is given by the estimated intercept, 1.54. Remember, this is the percentage growth at an annualized rate. It is statistically different from zero since t = 1.54/.56 = 2.75. 2. 1.54 + .031(10) = 1.85. As an aside, you could obtain the standard error of this estimate by running the regression. pcip t on pcip t -1 , pcip t -2 , pcip t -3 , ( pcsp t -1 – 10), and obtaining the standard error on the intercept. 3. Growth in the S&P 500 index has a statistically significant effect on industrial production growth – in the Granger causality sense – because the t statistic on pcsp t-1 is about 2.38. The economic effect is reasonably large. Problem 3 (Wooldridge 18.7)
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ProblemSet7Ans - ECON 3200 Introduction to Econometrics...

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