The forecaster augments her AR(4) model for IP growth to include four lagged values of R t

The forecaster augments her AR(4) model for IP growth to include four lagged values of ΔR _t , where R _t , is the interest rate on 3-month U.S. Treasury bills (measured in percentage points at an annual rate).

a. The Granger-causality F-statistic on the four lags of ΔR is 4.16. Do interest rates help predict IP growth? Explain

b. The researcher also regresses AR, , on a constant, four lags of ΔR _t , and four lags of IP growth. The resulting Granger-causality F-statistic on the four lags of IP growth is 1.52. Does LP growth help to predict interest rates? Explain.

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a One useful application of the Fstatistic in time series forecasting is to test whether the lags of ... View the full answer