In Example 11.7, define the growth in hourly wage and output per hour as the change in the natural log: ghrwage - (log (hrwage) and goutphr = (log(outphr). Consider a simple extension of the model estimated in (11.29):
ghrwage, = (0 + (1 goutphr, + (2 goutphrt-1+ ut.
This allows an increase in productivity growth to have both a current and lagged effect on wage growth.
(i) Estimate the equation using the data in EARNS.RAW and report the results in standard form. Is the lagged value of goutphr statistically significant?
(ii) If (1 + (2 a permanent increase in productivity growth is fully passed on in higher wage growth after one year. Test H0: (1 + (2 = 1 against the two-sided alternative. Remember, one way to do this is to write the equation so that ( = (1 + (2 appears directly in the model, as in Example 10.4 from Chapter 10.
(iii) Does goutphr1-2 need to be in the model? Explain.