On the textbook's Web site, Table 12-9 contains data on the daily U.S. /EU exchange rate from

Question:

On the textbook's Web site, Table 12-9 contains data on the daily U.S. /EU from 2004 to 2008.
a. Create a scatter plot of the rates over time. What pattern do you see?
b. Now take the first differences of the data and create a new plot. Based on this graph, do you think the original series is stationary?
c. Regress the differenced on a (one-period) lagged version of the as follows:
ΔYt = AYt-1 + ut
Based on this model, do you think the original series is a random walk?
d. Now introduce a constant to the model:
ΔYt = A1 + A2Yt-1 + ut
Do the results here indicate that Y, is a random walk with drift?
e. Lastly, estimate the model using a drift parameter and a trend variable:
ΔYt = A1 + A2t + A3Yt-1 + ut
f. What do all these results indicate about the stationarity of Yt?
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...