What proportion of the variance in next year's unemployment is explained by this year's inflation? If we are going to use data from this year to predict unemployment next year. why not use this year's unemployment to predict next year's unemployment? A model like this, in which previous values of a variable are used to predict future values of the same variable, is called an autoregressive model. The following table presents the data needed to fit this model.

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This Year's Next Year's This Year s Next Year's 0 Year Uinemployment Unemployment Year Unemployment Unemployment 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 2 1999 2000 2001 2002 2003 4.2 7.2 7.0 6.2 5.5 5.3 5.6 7.0 4.0 4.7 5.8 6.0 5.5 5.5 5.8 5.3 5.5 5.1 4.6 4.6 5.8 6.8 2005 2006 2007 2008 7.5 6.9 6.9 4.6 5.8 9.3 5.6 5.4 4.9 5.4 2010 2011 9.6 8.9 8.1 8.9 4.5 4.2