An autoregressive distributed lag model for a country observed by 25 yearly observations is estimated as

where
ŷ = inflation rate
x₁ = Consumer Price Index (CPI)
x₂ = price set by government
x₃ = demand
The numbers below the coefficients are the coefficient standard errors.

a. Interpret the coefficients of the lagged variable.
b. Test at the 5% level the null hypothesis of the effect of the previous inflation rate on the current inflation rate.
c. Interpret the coefficient of determination.
d. What do you conclude about the significance of the overall model?

Transcribed Image Text:

ŷt = 11 + 9x1 + 2x2 +0.4x3+0.7yt-1 (0.04) (0.17) (0.06) (0.32) R² = 0.879 and F = 211.654