The U.S. Department of Commerce has asked you to develop a regression model to predict quarterly investment in production and durable equipment. The suggested predictor variables include GDP, prime interest rate, per capita income lagged, federal government spending, and state and local government spending. The data for your analysis are found in the data file Macro2010, which is described in the data dictionary in the chapter appendix. Use data from the time period 1980.1 through 2010.4.
a. Estimate a regression model using only interest rate to predict the investment. Use the Durbin Watson statistic to test for autocorrelation.
b. Find the best multiple regression equation to predict investment using the predictor variables previously indicated. Use the Durbin-Watson statistic to test for autocorrelation.
c. What are the differences between the regression models in parts a and b in terms of goodness of fit, prediction capability, autocorrelation, and contributions to understanding the investment problem?