The file P02_25.xlsx contains monthly values of two key interest rates, the federal funds rate and the prime rate.
a. Specify one or more promising auto regression models based on autocorrelations of the federal funds rate series. Estimate each model with the available data. Which model provides the best fit to data?
b. Use the best auto regression model from part a to produce forecasts of the federal funds rate in the next two years.
c. Repeat parts a and b for the prime rate series.