Source: Economic Report of the President, 1993, Table B-53, p. 408. *Annual data are averages of monthly, not seasonally adjusted, figures. "•"Seasonally adjusted, end of period figures beginning 1982 are not comparable with earlier period.
502 PART TWO: RELAXING THE ASSUMPTIONS OF THE CLASSICAL MODEL
a. Estimate the preceding regression.
b. From the estimated residuals find out if there is positive autocorrelation using (i) the Durbin-Watson test and (ii) the large-sample normality test given in (12.6.13).
c. If p is positive, apply the Berenblutt-Webb test to test the hypothesis that p = 1.
d. If you suspect that the autoregressive error structure is of order p, use the Breusch-Godfrey test to verify this. How would you choose the order of p?
e. On the basis of the results of this test, how would you transform the data to remove autocorrelation? Show all your calculations.
f. Repeat the preceding steps using the following model:
ln Yt = ¡1 + ¡$2 ln Xt + ut g. How would you decide between the linear and log-linear specifications? Show explicitly the test(s) you use.
12.35. Table 12.10 gives data on real rate of return on common stocks at time
(RRt), output growth in period (t + 1), (OGt+1) and inflation in period
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