Consider the following portion of data on real estate loans granted by FDIC-insured Commercial Banks in the United States (in billions of U.S. dollars, base = 2007) from 1972 to 2007.

Year................... Loans

1972................. 489.27

1973................. 567.26

⋮.......................... ⋮

2007.............. 3,604.03

a. Plot the series and comment on the growth of real estate loans.

b. Estimate the linear and exponential trend models for real estate loans. Compare the models in terms of their mean square errors. Use the preferred model to make a forecast for real estate loans in year 2008.

c. Compare the in-sample performance of the preferred model used in part b with an autoregressive model of order one, AR(1). Make a forecast for real estate loans in year 2008 with this model.