Now, consider the following model: con_grth, Y+Y2con grth-1 + ut where con_grth = growth of personal...

 

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Now, consider the following model: con_grth, Y₁+Y2con grth-1 + ut where con_grth = growth of personal consumption. This formulation of the consumption function is an AR(1) model, where consumption growth in the current period is a function of consumption growth one period earlier. If this model is true, then this can be taken as evidence against the permanent income hypothesis which states that growth in consumption in not predictable. 1. Estimate the model above using Eviews. (Please name and save your results) (2 Marks) I 2. Interpret the y₂ coefficient making sure to explain if there is evidence to reject the permanent income hypothesis for this sample. (4 Marks) Now, consider the following model: con_grth, Y₁+Y2con grth-1 + ut where con_grth = growth of personal consumption. This formulation of the consumption function is an AR(1) model, where consumption growth in the current period is a function of consumption growth one period earlier. If this model is true, then this can be taken as evidence against the permanent income hypothesis which states that growth in consumption in not predictable. 1. Estimate the model above using Eviews. (Please name and save your results) (2 Marks) I 2. Interpret the y₂ coefficient making sure to explain if there is evidence to reject the permanent income hypothesis for this sample. (4 Marks)

Answer rating: 100% (QA)

Estimate the model above using Eviews Please name and save your results The model above can be estimated using Eviews by running a regression with lag... View the full answer