Figure 3 shows a plot of the first differences in the civilian unemployment rate (UER) between January 1996 and December 2000, ΔUER t = UER t ˆ’ UERtˆ’1.
FIGURE 3 Change in Civilian Unemployment Rate

A. Has differencing the data made the new series, ΔUER t, covariance stationary? Explain your answer.
B. Given the graph of the change in the unemployment rate shown in the figure, describe the steps we should take to determine the appropriate autoregressive time-series model specification for the series ΔUER t.

Percent 0.4 0.3 0.2 0.1 0.0 -0.1 -0.2 -0.3 -0.4 -0.5 1996 1997 1998 1999 2000 Year