Using the monthly data in VOLAT.RAW, the following model was estimated:

where pcip is the percentage change in monthly industrial production, at an annualized rate, and pcsp is the percentage change in the Standard & Poor's 500 Index, also at an annualized rate.
(i) If the past three months of pcip are zero and pcsp-1 = 0, what is the predicted growth in industrial production for this month? Is it statistically different from zero?
(ii) If the past three months of pcip are zero but pcsp-1 = 10, what is the predicted growth in industrial production?
(iii) What do you conclude about the effects of the stock market on real economic activity?

Transcribed Image Text:

1.54 + .344 pciP.1 + .074 рсір-2 + 073 pcip-з + .031 pcsp_1 (.56) 042) pcíp (.045) (.042) (.013) n 554, R174, R168