The accompanying table, compiled by economists Karl Case and Robert Shiller, lists average US housing prices (in the form of a real, inflation-adjusted index) from 1975 to 2010.

a. Using the years 1975 to 2006 (and denoting the time variable by the integers 1 to 32 for simplicity), estimate the linear time trend of housing prices. Use the same data to estimate an exponential trend. How well does either trend fit the data?
b. Now estimate two separate linear regressions-one for years 1975 to 1996 and one for 1996 to 2006. Does dividing the time series in this way make sense? How well does the trend equation estimated for 1996 to 2006 predict actual housing prices over the next five years?

Transcribed Image Text:

.5 6 5 4 5 4 .7 1132 2 nde 353 .0 1 .5 .0 3 2 6 6 4 ice 122 42515501 .4 55 .7 0 5